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7 d. Confirm even sales volume. Problem 11-29 Margin of safety and operating leverage Santiago Company is considering the addition of a new product to
7 d. Confirm even sales volume. Problem 11-29 Margin of safety and operating leverage Santiago Company is considering the addition of a new product to its cosmetics line. The com has three distinctly different options: a skin cream, a bath oil, or a hair coloring gel. Relevant mation and budgeted annual income statements for each of the products follow Relevant Information Skin Cream Bath Oil 50,000 90,000 Budgeted sales in units (a) $7.00 $4.00 Expected sales price (b) $4.00 $1.50 Variable costs per unit (c) Income Statements Sales revenue (a x b) $350,000 $360,000 Variable costs (a X c) (200,000) (135,000) Contribution margin 150,000 225,000 Fixed costs (120,000) (210,000) Net income S 30,000 S 15,000 Color Gel 30,000 $13.00 $ 9.00 $390,000 1270,000 120,000 (104.000 $ 16,000 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 tha csults from the 20 percent increase in sales. Which product has the highest operating levering d. Assuming that management is pessimistic and risk averse, which product should the com pany add to its cosmetic line? Explain your answer. e. Assuming that management is optimistic and risk aggressive, which product should the com pany add to its cosmetics line? Explain your
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