Question

Stuart 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 Skin Cream 132,000 Relevant Information Bath oil 212,000 Color Gel 92,000 14 10 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 $1,484,000 $ 924,000 660,000 $ 135,000 $1,288,000 368,000 $ 248,000 (264,000)(848.00 636,000 48,000) (920,000) 525,000) (525,000) $ 111,000 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 Req C 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 safe Req B>

Answer 1

Margin of safety is the difference between break even sales and budgeted sales.

Break even sales means the level of sales where the sales cover the cost of production. In other words , the sales at which there is no profit in the firm.

Here , in the picture , x is a variable. S.P. refers to selling price which is given in question and VCpu refers to variable cost per unit .

Answers .

D). If the company is pessimistic and risk averse, then it should add color gel to its products because it is having highest price among all

E) ​​​​​​If the company is optimistic and risk aggressive then it shall choose bath oil as it is having highest growth rate .