The demand for solvent, one of numerous products manufactured byLogan Industries Inc., has dropped sharply because of recentcompetition from a similar product. The company’s chemists arecurrently completing tests of various new formulas, and it isanticipated that the manufacture of a superior product can bestarted on November 1, one month in the future. No changes will beneeded in the present production facilities to manufacture the newproduct because only the mixture of the various materials will bechanged.

The controller has been asked by the president of the companyfor advice on whether to continue production during October or tosuspend the manufacture of solvent until November 1. The followingdata have been assembled:

Logan Industries Inc.

Income Statement—Solvent

For the Month Ended September 30

1	Sales (10,000 units)	$800,000.00
2	Cost of goods sold	(770,000.00)
3	Gross profit	$30,000.00
4	Selling and administrative expenses	(100,000.00)
5	Operating loss	$(70,000.00)

The production costs and selling and administrative expenses,based on production of 10,000 units in September, are asfollows:

Direct materials	$35 per unit
Direct labor	24 per unit
Variable manufacturing cost	8 per unit
Variable selling and administrative expenses	6 per unit
Fixed manufacturing cost	$100,000 for September
Fixed selling and administrative expenses	40,000 for September

Sales for October are expected to drop about 40% below those ofSeptember. No significant changes are anticipated in the fixedcosts or variable costs per unit. No extra costs will be incurredin discontinuing operations in the portion of the plant associatedwith solvent. The inventory of solvent at the beginning and end ofOctober is not expected to be significant (material).

	Required:
1.	Prepare an estimated income statement in absorption costingform for October for solvent, assuming that production continuesduring the month.*
2.	Prepare an estimated income statement in variable costing formfor October for solvent, assuming that production continues duringthe month.*
3.	What would be the estimated operating loss if the solventproduction were temporarily suspended for October? If a loss isincurred, enter that amount as a negative number using a minussign.
4.	What advice should you give to management? *Be sure to complete the statement heading. Refer to the listof Labels and Amount Descriptions provided for the exact wording ofthe answer choices for text entries. A colon (:) will automaticallyappear if it is required. Enter amounts as positive numbers unlessthe amount is a calculation that results in a negative amount. Forexample: Net loss should be negative.