The demand for aloe vera hand lotion, one of numerous products manufactured by Smooth Ski Products Inc., has dropped sharply because of recent competition from a similar product. The c 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 will be needed in the present production facilities to manufacture the new product because onl mixture of the various materials will be changed. The controller has been asked by the president of the company for advice on whether to contine production during November or to suspend the manufacture of aloe vera hand lotion until Dece The controller has assembled the following pertinent data: Smooth Skin Care Products Inc. Income Statement - Aloe Vera Hand Lotion For the Month Ended January 31 Financial Categories Sales (400,000) Cost of goods sold Gross profit Selling and admin expenses Loss from operations Direct materials Direct labor Category The production costs and selling and administrative expenses, based on production of 400,000 unit October, are as follows: Variable manufacturing costs Variable selling and admin. Expenses Fixed manufacturing cost Fixed selling and admin. Expenses Dollar Amount $ $ $ $ H $ 32,200,000 28,330,000 3,870,000 4,270,000 (400,000) Dollar Amount $15 per unit 17 per unit 35 per unit 10 per unit $1,500,000 for January 270,000 for January
The demand for aloe vera hand lotion, one of numerous products manufactured by Smooth Ski Products Inc., has dropped sharply because of recent competition from a similar product. The c 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 will be needed in the present production facilities to manufacture the new product because onl mixture of the various materials will be changed. The controller has been asked by the president of the company for advice on whether to contine production during November or to suspend the manufacture of aloe vera hand lotion until Dece The controller has assembled the following pertinent data: Smooth Skin Care Products Inc. Income Statement - Aloe Vera Hand Lotion For the Month Ended January 31 Financial Categories Sales (400,000) Cost of goods sold Gross profit Selling and admin expenses Loss from operations Direct materials Direct labor Category The production costs and selling and administrative expenses, based on production of 400,000 unit October, are as follows: Variable manufacturing costs Variable selling and admin. Expenses Fixed manufacturing cost Fixed selling and admin. Expenses Dollar Amount $ $ $ $ H $ 32,200,000 28,330,000 3,870,000 4,270,000 (400,000) Dollar Amount $15 per unit 17 per unit 35 per unit 10 per unit $1,500,000 for January 270,000 for January
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:**Analyzing Smooth Skin Care Products Inc.: Income & Cost Breakdown**
As of recent, the demand for the aloe vera hand lotion from Smooth Skin Care Products Inc. has declined due to competition. Chemists are testing new formulas, with potential production starting by December 1. No changes to production facilities are anticipated, just adjustments in the material mixture.
### Income Statement Overview (For the Month Ended January 31)
- **Sales (Units: 400,000):** $32,200,000
- **Cost of Goods Sold:** $28,330,000
- **Gross Profit:** $3,870,000
- **Selling and Administrative Expenses:** $4,270,000
- **Loss from Operations:** ($400,000)
### Production & Administrative Costs (Based on 400,000 units in October)
1. **Direct Materials:** $15 per unit
2. **Direct Labor:** $17 per unit
3. **Variable Manufacturing Costs:** $35 per unit
4. **Variable Selling & Administrative Expenses:** $10 per unit
5. **Fixed Manufacturing Cost for January:** $1,500,000
6. **Fixed Selling & Administrative Expenses for January:** $270,000
The insights gathered assist decision-making on whether to continue or pause production until new formulas are finalized.
Transcribed Image Text:**Sales Forecast and Financial Planning for Aloe Vera Hand Lotion**
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 aloe vera hand lotion. The inventory of aloe vera hand lotion at the beginning and end of November is expected to be inconsequential.
**Instructions**
a. Prepare an estimated income statement in absorption costing form for February for aloe vera hand lotion, assuming production continues during the month.
b. Prepare an estimated income statement in variable costing form for February for aloe vera hand lotion, assuming production continues during the month.
c. What would be the estimated loss in income from operations if the aloe vera hand lotion production was temporarily suspended for February?
d. What advice should the controller give to management?
Expert Solution
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As per the multiple sub-parts we can solve only first three part for you if you want to get answer of another question please repost the question with specify the no of question.
Absorption costing in is called full costing in which all costs associated with manufacturing in of a product is captured.in this direct and indirect costs such as material, labour, selling and administrative cost etc are accounted for by using this method.
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