Caps Lock E At 436 Chapter LO 11-6 Hampton Company is considering the addition of a new product to its ceo Hampndstinctly dntal incot cosmetics line. Th bair coloring sel Re Margin of safety and operating leverage Problem 11-29 for each of the products follow has three distinctly diferent options: a skin cream, a bath oil, or a hair color tion and budgeted Relevant Information HECK FIGURE Bath Oil Color Gel Skin Creanm ki Cream $270,000 Bath $270,000 olor Gel $240,000 120,000 $ 7.00 $ 2.00 4.00 $ 1.00 216.000 7200 5 10.00 S 6.00 Budgeted sales in units (a) Expected sales price (b) Variable costs per unit (c) Income statements Sales revenue (a x b) Variable costs (a x c) $864,000 $720.000 Write a para $840,000 216000 32000 (480,000) 540000) (120,000 (240,000) 48.000 288,000 600,000 Contribution margin Fixed costs Net income $120.000 108000 $16800 $120,000 ATC 11-2 Required The Parent The PTA is a. Determine the margin of safey as a percentage for each product. Round your figuresto mal points. b. Prepare revised income statements for each product, assuming a 25 percent increase inewl Harville A geted sales volume. Alternati Meadow Require a. In t bur c. For each product, determine the percentage change in net income that results from the 25 increase in sales. Which product has the highest operating leverage? Round your figures toe decimal points. d. Assuming that management is pessimistic and risk averse, which product should the compurya e. Assuming that management is optimistic and risk aggressive, which product should the compuy to its cosmetics line? Explain your answer. ad to its cosmetics ine? Explain your answer HINK, COMMUNICATE Grou ATC 11-1 Business Applications Operating leverage: Descrip consruction and mining equipment, diesel and natural gas engines, industrial gas turbines electric locomotives. The camnan With 2014 sales and revenues of $55.184 billion, Caterpillar is the world's leading m Caterpillar, Inc. tion of business and diest Problem 11-29 Skin Bath Oil Color Gel Cream a. Sales price (a) Variable costs (b) Contribution margin (c)=(a-b) Fixed costs (d) Break-even units (e) -(d-c) Break-even sales in $ () (e x a) Budgeted sales in units (g) Budgeted sales in $ (h)(gx a S Margin of safety (h-f-h Rounded Skin Cream Bath Oil Color Gel Expected sales in units (a) xpected sales price (b variable costs per unit (c) Income Statements Sales revenue (a x b)S Variable costs (a x c) Contribution margin Fixed cost Net income Skin Bath Oil Color Gel Cream Income before growth (a) Income atter growth (b) % Change in income (b-a)-a Rounded The has the highest operating leverage. A % change in revenue produces a % change in net income. 10-5 d. A pessimistic, risk-averse management would most likely choose to add margin of safety of the three products. to the product line. This product has the If management is optimistic and risk-aggressive, then be the favored product. While this product carries a safety, it offers the e. would margin of level of operating leverage