Instructions The demand for solvent, one of numerous products manufactured by RZ
ID: 2553579 • Letter: I
Question
Instructions The demand for solvent, one of numerous products manufactured by RZM Industries Inc., has dropped 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 June 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 May or to suspend the manufacture of solvent until June 1. The controller has assembled the following pertinent data: RZM Industries Inc Income Statement-Solvent For the Month Ended April 30 1 Sales (4,000 units) 2 Cost of goods sold 3 Gross profit 4 Selling and administrative expenses 5 Loss from operations $500,000.00 424,000.00 $76,000.00 102,000.00 $(26,000.00)Explanation / Answer
a) RZM Industries Inc. Estimated Income Statement—Absorption Costing—Solvent For the Month Ending May 31, 2017 Sales (4000 units x (1-20%) = 3200 x $125 $400,000.00 ???Cost of goods sold: ???Direct materials = (3200 x $45) $144,000.00 ???Direct labor = (3200 x $20) $64,000.00 ???Variable manufacturing cost (3200 x 16) $51,200.00 ???Fixed manufacturing cost $100,000.00 ???Cost of goods sold $359,200.00 ???Gross profit $40,800.00 ???Selling and administrative expenses: ???Variable selling and administrative expenses $48,000.00 ?Fixed selling and administrative expenses $42,000.00 Loss from operations -$49,200.00 b) RZM Industries Inc. Estimated Income Statement—Variable Costing—Solvent For the Month Ending May 31, 2017 Sales (4000 units x (1-20%) = 3200 x $125 $400,000.00 ???Cost of goods sold: ???Direct materials = (3200 x $45) $144,000.00 ???Direct labor = (3200 x $20) $64,000.00 ???Variable manufacturing cost (3200 x 16) $51,200.00 Total variable cost of good sold $259,200.00 Manufacturing margin $140,800.00 ???Variable selling and administrative expenses $48,000.00 Planned Contribution margin $92,800.00 Fixed costs: ???Fixed manufacturing cost $100,000.00 ?Fixed selling and administrative expenses $42,000.00 Total Fixed costs $142,000.00 Loss from operations -$49,200.00 3) Loss from operations $142,000.00 ???Fixed manufacturing cost $100,000.00 ?Fixed selling and administrative expenses $42,000.00 Total Fixed costs $142,000.00 4) Production of solvent should be continued Temporary suspension of production would result in an operating loss of $142,000 with a loss from operations of $49200 production is continued. The savings of ($142,000 - $49,200) $92,800.00