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Carmon Company is considering the addition of a new product to its cosmetics line. The company has three distinctly different options: a skin cream, a
Carmon 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.
Relevant Information | |||||||||
Skin Cream | Bath Oil | Color Gel | |||||||
Budgeted sales in units (a) | 116,000 | 196,000 | 76,000 | ||||||
Expected sales price (b) | $ | 7 | $ | 6 | $ | 12 | |||
Variable costs per unit (c) | $ | 2 | $ | 3 | $ | 8 | |||
Income statements | |||||||||
Sales revenue (a b) | $ | 812,000 | $ | 1,176,000 | $ | 912,000 | |||
Variable costs (a c) | (232,000 | ) | (588,000 | ) | (608,000 | ) | |||
Contribution margin | 580,000 | 588,000 | 304,000 | ||||||
Fixed costs | (405,000 | ) | (405,000 | ) | (88,000 | ) | |||
Net income | $ | 175,000 | $ | 183,000 | $ | 216,000 | |||
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