Chapter 20 Variable Costing for Management Analysis Obj 1,2 mooth ontribution The demand for aloe vera hand lotion, one of numerous products manufactured by s , $960,000 Care Products Inc., has dropped sharply because of recent competition from a similar PR 20-28 Income statements under absorption costing and variable costing The company's chemists are currently completing tests of various new formulas, and it Produc pated that the manufacture of a superior product can be started on December 1, one mond the future. No changes will be needed in the present production facilities to manufacture product because only the mixture of the various materials will be changed. antici- the new whether to of aloe vera hand lotion The controller has been asked by the president of the company for advice on w until December 1. The controller has assembled the following pertinent data Smooth Skin Care Products Inc Income Statement-Aloe Vera Hand Lotion For the Month Ended October 31 Sales (400,000 units) . Cost of goods sold Gross profit Selling and administrative expenses Loss from operations 532,000,000 28,330,000 .$ 3,670,000 4,270,000 (600,000) The production costs and selling and administrative expenses, based on production of 400,000 units in October, are as follows: Direct materials Direct labor Variable manufacturing cost Variable selling and administrative expenses $15 per unit 17 per unit 35 per unit 10 per unit $1,530,000 for October Fixed manufacturing cost Fixed selling and administrative expenses 270,000 for October Sales for November 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 an estimated income statement in absorption costing form for November for aloe vera hand lotion, assuming that production continues during the month. 2. Prepare an estimated income statement in variable costing form for November for aloe vera hand lotion, assuming that production continues during the month. 3. Wha t would be the estimated loss in income from operations if the aloe vera hand lotion production were temporarily suspended for November? 4. -What advice should the controller give to management? PR 20-3B Absorption and variable costing income statements for two months and analysis Obj. 1, 2 During the first month of operations ended July 31, Head Gear Inc manufi