The demand for cocoa butter 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 controller has been asked by

the president of the company for advice on whether to continue production during the following month or to

suspend the manufacture of cocoa butter hand lotion until a strategy to regain market share. The controller has

assembled the following pertinent data:

Smooth Skin Care Products Inc.

Income Statement $-$ Cocoa Butter Hand Lotion

For the Month Ended January $31$

The production costs and selling and administrative expenses, based on the production of $400,000$ units in

the Income Statement above, are as follows:

Sales for February 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 cocoa butter hand lotion. The inventory of cocoa butter hand lotion at the

beginning and end of February is expected to be inconsequential.

a$.$ Prepare an estimated income statement in absorption costing form for February for Cocoa butter hand

lotion, assuming production continues during the month.

b$.$ Prepare an estimated income statement in variable costing form for February for cocoa butter hand lotion,

assuming production continues during the month.

c$.$ What would be the estimated loss in income from operations if the cocoa butter hand lotion production was

temporarily suspended for February?

d$.$ What advice should the controller give to management based on your answer to part c$?$