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 Relevant Information Bath Oil 212,000 Skin Cream Color Gel 92,000 14 10 Budgeted sales in 132,000 units (a) Expected sales price (b) Variable costs per unit (c) Income statements Sales revenue (a 2 4 $ 924,000 $1,484,000 $1,288,000 Variable costs (a (264,000) (848,000) (920,000) Contribution marqin Fixed costs Net income 660,000 525,000 636,000 368,000 525,000 (120,000) $ 135,000 111,000 248,000 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 D to Req AReq B Req C Prepare revised income statements for each product, assuming a 20 percent increase in the budgeted sales volume STUART COMPANY Income Statements Skin Cream Bath Oil Color Ge Sales revenue Variable costs Contribution margin Fixed cost Net income

Answer 1

Answer