The demand for aloe vera hand lotion, one of numerous products manufactured by Smooth Skin Care Products Inc., has dropped sharply because of recent competition from a similar product. The company's chemists are currently completing tests of various new formulas, and it is anticipated that the manufacture of a superior product can be started on December 1, one month in the future. No changes will be needed in the present production facilities to manufacture the new product because only the mixture of the various materials will be changed.

The controller has been asked by the president of the company for advice on whether to continue production during November or to suspend the manufacture of aloe vera hand lotion until December 1. The controller has assembled the following pertinent data:

Smooth Skin Care Products Inc. Income StatementAloe Vera Hand Lotion For the Month Ended October 31
Sales (400,000 units)	$32,000,000
Cost of goods sold	28,330,000
Gross profit	$3,670,000
Selling and administrative expenses	4,270,000
Loss from operations	$(600,000)

The production costs and selling and administrative expenses, based on production of 400,000 units in October, are as follows:

Direct materials	$15	per unit
Direct labor	17	per unit
Variable manufacturing cost	35	per unit
Variable selling and administrative expenses	10	per unit
Fixed manufacturing cost	$1,530,000	for October
Fixed selling and administrative expenses	270,000	for October

Sales for November are expected to drop about 20% below those of the preceding month. No significant changes are anticipated in the fixed costs or variable costs per unit. No extra costs will be incurred in discontinuing operations in the portion of the plant associated with aloe vera hand lotion. The inventory of aloe vera hand lotion at the beginning and end of November is expected to be inconsequential.

Required:

1. Prepare an estimated income statement in absorption costing form for November for aloe vera hand lotion, assuming that production continues during the month.

Smooth Skin Care Products Inc.
Estimated Income StatementAbsorption CostingAloe Vera Hand Lotion
For the Month Ending November 30
Sales		$
Cost of goods sold:
Direct materials	$
Direct labor
Variable manufacturing cost
Fixed manufacturing cost
Total cost of goods sold
Gross profit		$
Selling and administrative expenses:
Variable selling and administrative expenses	$
Fixed selling and administrative expenses
Total selling and administrative expenses
Loss from operations		$

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2. Prepare an estimated income statement in variable costing form for November for aloe vera hand lotion, assuming that production continues during the month.

Smooth Skin Care Products Inc.
Estimated Income StatementVariable CostingAloe Vera Hand Lotion
For the Month Ending November 30
Sales		$
Variable cost of goods sold:
Direct materials	$
Direct labor
Variable manufacturing cost
Total variable cost of goods sold
Manufacturing margin		$
Variable selling and administrative expenses
Contribution margin		$
Fixed costs:
Fixed manufacturing cost	$
Fixed selling and administrative expenses
Total fixed costs
Loss from operations		$