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1. Prepare an estimated income statement in absorption costing form for June for solvent, assuming that production continues during the month.

1. Prepare an estimated income statement in absorption costing form for June for solvent, assuming that production continues during the month.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Instructions The demand for solvent, one of numerous products manufactured by Celecia 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 July 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 June or to suspend the manufacture of solvent until July 1. The following data have been assembled: Celecia Industries Inc. Direct materials Income Statement-Solvent 1 Sales (25,000 units x $15 per unit) 2 Cost of goods sold 3 Gross profit 4 Selling and administrative expenses 5 Operating loss Direct labor For the Month Ended May 31 The production costs and selling and administrative expenses, based on production of 25,000 units in May, are as follows: Variable manufacturing cost Variable selling and administrative expenses $375,000.00 (256,250.00) $118,750.00 (77,500.00) $41,250.00 Fixed manufacturing cost Fixed selling and administrative expenses $2.50 per unit 3.00 per unit 0.75 per unit 1.50 per unit $100,000 for May 40,000 for May Sales for June are expected to drop 40% below those of May to 15,000 units (25,000 x 60%). 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 solvent. The inventory of solvent at the beginning and end of June is not expected to be significant (material).
Transcribed Image Text:Instructions The demand for solvent, one of numerous products manufactured by Celecia 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 July 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 June or to suspend the manufacture of solvent until July 1. The following data have been assembled: Celecia Industries Inc. Direct materials Income Statement-Solvent 1 Sales (25,000 units x $15 per unit) 2 Cost of goods sold 3 Gross profit 4 Selling and administrative expenses 5 Operating loss Direct labor For the Month Ended May 31 The production costs and selling and administrative expenses, based on production of 25,000 units in May, are as follows: Variable manufacturing cost Variable selling and administrative expenses $375,000.00 (256,250.00) $118,750.00 (77,500.00) $41,250.00 Fixed manufacturing cost Fixed selling and administrative expenses $2.50 per unit 3.00 per unit 0.75 per unit 1.50 per unit $100,000 for May 40,000 for May Sales for June are expected to drop 40% below those of May to 15,000 units (25,000 x 60%). 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 solvent. The inventory of solvent at the beginning and end of June is not expected to be significant (material).
1. Prepare an estimated income statement in absorption costing form for June for solvent, assuming that production continues during the month. Income Statement Instructions 1 2 (Label) 3 4 5 6 7 8 9 (Label) 10 11 12 13 Celecia Industries Inc. Estimated Income Statement-Absorption Costing-Solvent (Label)
Transcribed Image Text:1. Prepare an estimated income statement in absorption costing form for June for solvent, assuming that production continues during the month. Income Statement Instructions 1 2 (Label) 3 4 5 6 7 8 9 (Label) 10 11 12 13 Celecia Industries Inc. Estimated Income Statement-Absorption Costing-Solvent (Label)
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