PROBLEM 4-2A Income statements under absorption costing and variable costing Objectives 1, 2 SPREADSHEET The demand for solvent, one of numerous products manufactured by Albany Prod- ucts Inc., has dropped sharply because of recent competition from a similar prod uct. 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 November 1, one month hence. No changes will be needed in the present produc tion facilities to manufacture the new product because only the mixture of the var sous materials will be changed. The controller has been asked by the president of the company for advice on whether to continue production during October or to suspend the manufacture of solvent until November 1. The controller has assembled the following pertinent data: Albany Products Inc Income Statement-Solvent For the Month Ended September 30, 2007 Sales (3,200 units) $304,000 Cost of goods sold 255,440 Gross profit $ 48,560 Selling and administrative expenses 43,700 Income from operations 54,860 12. Contribution margin $59.520 The production costs and selling and administrative expenses, based on produc tion of 3,200 units in September, are as follows: Chapter 4 . Profit Reporting for Management Analysis P S a $ 38.00 per unit Direct materials 14.50 per unit Direct labor 11.70 per unit Variable manufacturing cost 6.00 per unit Variable selling and administrative expenses 50,000 for September Fixed manufacturing costs Fixed selling and administrative expenses 24,500 for September Sales for October are expected to drop about 25% below those of the preceding month. No significant changes are anticipated in the fixed costs or variable costs pet 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 October is expected to be inconsequential. Instructions 1. Prepare an estimated income statement in absorption costing form for October for solvent, assuming that production continues during the month. 2. Prepare an estimated income statement in variable costing form for October for solvent, assuming that production continues during the month. 3. What would be the estimated loss in income from operations if the solvent pro- duction were temporarily suspended for October What advice should the controller give to management