The demand for solvent, one of numerous products manufactured by RZM Industries 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 June 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 May or to suspend the manufacture of solvent until June 1. The controller has assembled the following pertinent data:

RZM Industries Inc. Income StatementSolvent For the Month Ended April 30 1 Sales (4,000 units) $500,000.00 2 Cost of goods sold 424,000.00 3 Gross prot $76,000.00 4 Selling and administrative expenses 102,000.00 5 Loss from operations $(26,000.00) The production costs and selling and administrative expenses, based on production of 4,000 units in April, are as follows: Direct materials $45 per unit Direct labor 20 per unit Variable manufacturing cost 16 per unit Variable selling and administrative expenses 15 per unit Fixed manufacturing cost $100,000 for April Fixed selling and administrative expenses 42,000 for April