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INSTRUCTIONS:

INSTRUCTIONS continued and required:

The demand for solvent, one of numerous products manufactured by Celeola Industries inc. has dropped sharply because of necent competion from a similar produot. 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 facilies to manufacture the new producf 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: The production costs and selling and administrative expenses, based on production of 25.000 units in May, are as follows: The production costs and sell ng and administrative expenses, based on production of 25,000 units in May, are as follows: Sales for June are expeoted to drop 40% below those of May to 15.000 units (25.000 x 60% ) No 5 g gnificant 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 expeoted to be significant (material). Required: 1. Prepare an estimated income statement in absomption costing form for June for solvent, assuming that produotion continues during the month. 2. Prepare an estimated income statement in variable costing form for June for solvent, assuming that production continues during the month. 3. What would be the estimated operating loss if the solvent production were temporarily suspended for June? 4. What advice should you give to management