Question

Relevant Information Skin Cream B ath Oil Color Gel 110,000 190,000 70,000 $ 11 $ Budgeted sales in units (a) Expected sales price (b) Variable costs per unit (c) Income statements Sales revenue (a x b) Variable costs (a x c) Contribution margin Fixed costs Net income $ 880,000 (220, 000) 660,000 (432,000) $ 228,000 $ 760,800 (380,000) 380,000 (240,000) $ 140,000 $ 770,000 (490,000) 280,000 (76,000) $ 284,000 Required: a. Determine the margin of safety as a percentage for each product. b. Prepare revised income statements for each product, assuming a 20 percent increase in the budgeted sales volume. c. For each product, determine the percentage change in net income that results from the 20 percent increase in sales. d. Assuming that management is pessimistic and risk averse, which product should the company add to its cosmetics line? e. Assuming that management is optimistic and risk aggressive, which product should the company add to its cosmetics line? Complete this question by entering your answers in the tabs below. Req A Req B ReqC Req D to E Determine the margin of safety as a percentage for each product. (Round your answers to whole percentage values. Skin Cream Bath Oil Color Gel Margin of safety % %

Answer 1

Skin Cream Bountion (a) go a l Calculation of Profit volume Patio Cer) patio of each product line. I rolophu Ratio Enribution xicot sales (xivo) baba particular Bath oil is Colorgel C Contribution ($) 660,000 380,000 286,000. 5 Sales ($) 1880,000 760,000 1770,000 pl Patio ( x w 75% 50% 36.36% (2) Calculation of Margin of a safety (%) 998 margin of safety Profit P/V Ratio Sun Particulars Cream AL plup Plu Ratio 1 75% 50% 36.36% Net Income $228,000 $140,000 $204,000 (Bobit) margin of $304,000 $250,000 1561,000 Safety (B) Bath Colored

Solution (b) it & statement showing Revised Inome statement Particular de Skin Bath I Glorgel Badgeted sales 120,000 190,000 70,ooo e unit Revised sales volumel 132000 2280001 84000 CA (1.e. 120%) 1 unit I unit, I units 6 Sales Price del 880188 $ 11 Sales Revenue 1,056,000. 1912,000/924, ooo CAXB) Lessi variable Cost (264000) (156000) (588000 & Consibution Jess! Margin Fixed Costs 1792,000 1456,000 336,000 [ (432000) (240 000)| (76000) 360,000 216,000 260,000 I Net Income

Solution [c] Statement showing Percentage Change in het Income For each Product line I Colorget Buth oil 14oooo C 216000 204000 1260000 particular Skin eam Be-revised Income 228000 Revised Income 1360000 Cy) Change in Income 1 132ooo 1(y-X)=2 % Change in 57.89% Income ( 10) 76000 56000 54.28% (27.45% solution d] If the management is pessimistic and is not willing to take risk, then, in such cast, management is an add skin cream and Bath ail Product to its to Cosmetic Product line. since, ret Income is gelatively higher the Bo- be-evised Income. It will increase income by 57.89% and 54.28%