Question

I just need help figuring out the incorrect answers (in red). The green answers are already correct. Thank you
Munoz Company is considering the addition of a new product to its cosmetics line. The company has three distinctly different options: a skin cream, a bath oil, or a hair coloring gel. Relevant information and budgeted annual income statements for each of the products follow. Relevant Information Skin Cream Bath Oil Color Gel 122,000 202,000 82,000 $ 10 $ $ 14 $ 8 2 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 $1,220,000 (244,000) 976,000 (720,000) $ 256,000 $1,616,000 (606,000) 1,010,000 (750,000) $ 260,000 $1,148,000 (656,000) 492,000 (150,000) $ 342,000 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. c1. For each product, determine the percentage change in net income that results from the 20 percent increase in sales. c2. Which product has the highest operating leverage? 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? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Reqa Req B Req C1 Reg C2 to E Determine the margin of safety as a percentage for each product. (Round your answers to whole percentage values.) Margin of safety Skin Cream 34 Bath Oil 26 Color Gel 70 % % %

Answer 1

Skim Cream Bath Oil Color Gel Budgeted Sales Expected sales Price Variable Cost per unit Income Statement Sales Revenue Variable Expense Contribution Margin Fixed Cost 122000 202000 82000 10 14 8. 1220000 1616000 1148000 606000 656000 244000 976000 1010000 492000 750000 150000 720000 256000 Net income 260000 342000 1. Determine the Margin of Safety as a percentage for Each Product Skim Cream Bath Oil Color Gel CM Ratio (Contribution margin/sales ) BEP Sales 80.00% 62.50% 42.86% 350000 900000 1200000 (Fixed Cost / CM ratio ) Margin of Safety (Actual sales - BEP sale) Margin of Safety % Margin of Safety / Actual Sales ) 320000 416000 798000 25.74% 69.51% 26.23% 1. Determine the Margin of Safety as a percentage for Each Product Bath Oil Skim Cream Color Gel Margin of Safety % 26% 26% 70% (Margin of Safety / Actual Sales )

2. Revised income Statement for each product if 20% increase in budgeted Skim Cream Bath Oil Color Gel Budgeted Sales ( 20% Increase) Expected sales Price Variable Cost per unit 98400 146400 242400 10 14 2 3 8. Income Statement Skim Cream Bath Oil Color Gel Sales Revenue LESS:Variable Expense Contribution Margin 1939200 1377600 1464000 292800 727200 787200 590400 1171200 1212000 LESS: Fixed Cost Net income 720000 750000 150000 451200 440400 462000 3. Percentage change in net income with the percentage 20% change in Sales Skim Cream Bath Oil Color Gel Percentage change in net income 78% 76% 29% Assume that the Management is Pessimistic and risk averse, Which product should the company add: Color Gel Assume that the Management is Optimistic and risk Aggressive , Skim Cream Which product should the company add: