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Question(s) / Instruction(s):

Ziggy Hair Care Products Inc.
Income Statement- Shampoo
For the Month Ended January 31, 2012

Sales (294,000 units).......................................... $15,582,000
Costs of Goods Sold .......................................... 14,250,000
Gross Profit......................................................... $ 1,332,000
Selling and administrative expenses.................... 2,149,000
Loss from operations........................................... $ (817,800)

The production costs and selling and administrative expenses based on production of 294,000 units in January, are as follows:

Direct Materials $9.50/unit
Direct Labor $12.00/unit
Variable Manufacturing Cost $23.50/unit
Variable Selling and Administrative Expenses $6.70/unit
Fixed Manufacturing Cost $1,020,000 for January
Fixed Selling and Administrative Expenses $180,000 for January


Sales for February are expected to drop about 30% 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 shampoo. The inventory of shampoo at the beginning and end of February is expected to be inconsequential.

Instructions:
1)Prepare an income statement in absorption costing form for February for shampoo, assuming production continues during the month.
2)Prepare an estimated income statement in variable costing form for February for shampoo, assuming production continues during the month
3)What would be the estimated loss in income from operations if the shampoo production were temporarily suspended for February?
4)What advice would the controller give to management?

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