Instructions The demand for aloe vera hand lotion, one of numerous products manu
ID: 2467023 • Letter: I
Question
Instructions The demand for aloe vera hand lotion, one of numerous products manufactured by Smooth Skin Care Products Inc, has droped 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 December 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 November or to suspend the manufacture of aloe vera hand lotion until December 1. The controller has assembled the following pertinent data:Explanation / Answer
The operating loss will be 1,800,000
That is fixed manufacturing cost of 1,530,000 plus fixed selling and administrative expense of $270,000 will still be incurred and there will be no variable cost incurred.
The operating loss will be 1,800,000
That is fixed manufacturing cost of 1,530,000 plus fixed selling and administrative expense of $270,000 will still be incurred and there will be no variable cost incurred.