Brooks 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 sold.

Relevant Information

Skin Cream Bath Oil Color Gel

Budgeted sales in units (a) 134,000 214,000 94,000

Expected sales in price (b) $ 8 $ 6 $ 14

Variable costs per unit (c) $ 2 $ 4 $ 10

Income statements

Sales revenue (a * b) $1,072,000 $1,284,000 $1,316,000

Variable costs (a * c) (268,000) (856,000) (940,000)

Contribution margin 804,000 428,000 376,000

Fixed costs (648,000) (360,000) (124,000)

Net Income $ 156,000 $ 68,000 $ 252,000

Required

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

Skin Cream Bath Oil Color Gel

Margin of safety % % %

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

BROOKS COMPANY

Income Statements

Skin Cream Bath Oil Color Gel

Sales revenue $1,286,400 $1,540,800 $1,579,200

Variable costs

Contribution margin $1,286,400 $1,540,800 $1,579,200

Fixed cost (648,000) (360,000) (124,000)

Net income

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

Skin Cream Bath Oil Color Gel

Percentage change in net income % % %