Benson 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.

Required:

1. Determine the margin of safety as a percentage for each product.

2. Prepare revised income statements for each product, assuming a 20 percent increase in the budgeted sales volume.

3. For each product, determine the percentage change in net income that results from the 20 percent increase in sales.

4. Which product has the highest operating leverage?

5. Assuming that management is pessimistic and risk averse, which product should the company add to its cosmetics line?

6. Assuming that management is optimistic and risk aggressive, which product should the company add to its cosmetics line?

Relevant Information Skin Cream 106,000 10 Bath Oil 186,000 Color Gel 66,000 12 Budgeted sales in units (a) Expected sales price (b) Variable costs per unit (c) Income statements Sales revenue (a b) Variable costs (a x c) Contribution margin Fixed costs $1,060,000 848,000 320,000 $1,116,000 $ 792,000 (186,000) 930,000 (396,000) 396,000 (528,000)(550,000 $380,000 Net income $ 294,000 Req A Req B Req C Reqs C2 to E Prepare revised income statements for each product, assuming a 20 pe BENSON COMPANY Income Statements Skin Cream Bath Oil Color Gel Sales revenue Variable costs Contribution margin Fixed cost Net income Req A Req B Req C1 Reqs C2 to E For each product, determine the percentage change in net income that results from the 20 pe your answers to whole percentage values.) Skin Cream Bath Oil Color Gel Percentage change in net income Req A Req B Req C1 Reqs C2 to E Which product has the highest operating leverage? Assuming that management is pessimistic and risk averse, which product should the company add to its cosmetics line? Assuming that management is optimistic and risk aggressive, which product should the company add to its cosmetics line