Finch 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. Budgeted sales in units (a) Expected sales price (b) Variable costs per unit (c) Income statements Sales revenue (a × b) Variable costs (a × c) Contribution margin Fixed costs Net income Req A Req B Margin of safety Req C1 Skin Cream 112,000 Skin Cream Relevant Information 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? % Complete this question by entering your answers in the tabs below. $9 $2 Bath Oil Color Gel 192,000 Req C2 to E Determine the margin of safety as a percentage for each product. Note: Round your answers to whole percentage values. Bath Oil $1,008,000 $960,000 $864,000 (224,000) (384,000) (504,000) 784,000 576,000 360,000 (525,000) (375,000) (100,000) $259,000 $201,000 $260,000 % $5 $2 LALA Color Gel 72,000 $12 $7 %
Finch 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. Budgeted sales in units (a) Expected sales price (b) Variable costs per unit (c) Income statements Sales revenue (a × b) Variable costs (a × c) Contribution margin Fixed costs Net income Req A Req B Margin of safety Req C1 Skin Cream 112,000 Skin Cream Relevant Information 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? % Complete this question by entering your answers in the tabs below. $9 $2 Bath Oil Color Gel 192,000 Req C2 to E Determine the margin of safety as a percentage for each product. Note: Round your answers to whole percentage values. Bath Oil $1,008,000 $960,000 $864,000 (224,000) (384,000) (504,000) 784,000 576,000 360,000 (525,000) (375,000) (100,000) $259,000 $201,000 $260,000 % $5 $2 LALA Color Gel 72,000 $12 $7 %
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Finch 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.
Budgeted sales in units (a)
Expected sales price (b)
Variable costs per unit (c)
Income statements
Sales revenue (a × b)
Variable costs (a × c)
Contribution margin
Fixed costs
Net income
Req A
Req B
Margin of safety
Req C1
Skin Cream
112,000
Skin Cream
Relevant Information
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?
%
Complete this question by entering your answers in the tabs below.
$9
$2
Bath Oil Color Gel
192,000
Req C2 to E
Determine the margin of safety as a percentage for each product.
Note: Round your answers to whole percentage values.
Bath Oil
$1,008,000
$960,000 $864,000
(224,000) (384,000) (504,000)
784,000 576,000
360,000
(525,000) (375,000)
(100,000)
$259,000 $201,000 $260,000
%
$5
$2
LALA
Color Gel
72,000
$12
$7
%
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