The demand of solvent, one of numerous products manufactured by Miki Industries Incorporation has dropped sharply because of recent competition from a similar product. The company's chemist is currently completing tests of various new formulas, and it is an anticipated that the manufacture of a superior product can be started on May 1. No charges 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 April or to suspend the manufacture of solvent until May 1. The controller has assembled the following pertinent data:

Income statement Incorporation for the month ended March 31, 2020

$

Sales (2,500 units) 175,000 Cost of goods sold 156,500 Gross profit 18,500 Selling & administration expenses 36,600 Loss from operations -18,100

The production cost and selling and administration expenses, based on production of 2,500 unit in March, are as follows:

$

Direct materials 27.3 per unit

Direct labour 9.5 per unit

Variable manufacturing cost 9 per unit

Variable selling & administration expenses 5 per unit

Total Fixed manufacturing cost 42,000 per unit

Total Fixed selling & administration expenses 24,100 per unit

Sales for April are expected to drop about 25% below those of the preceding month. No significant changes are anticipated in the fixed costs or variable cost per unit. No extra costs will be incurred in discounting operations in the portion of the plant associated with solvent. The inventory of solvent at the beginning and end of April is expected to be inconsequential. Required:

a) Provide estimated income statement in absorption costing assuming that the production continues during the month.

b) Provide estimated income statement in variable costing assuming that the production continues during the month.

c) What would be the estimated loss in income statement from operations if the solvent production were temporarily suspended for April?

d) What advise should the controller give to management