Problem 11-29 Margin of safety and operating leverage Hampton 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 informa- tion and budgeted annual income statements for each of the products follow. Relevant Information Skin Cream Bath Oil Color Gel Budgeted sales in units (a) 120,000 216,000 72,000 Expected sales price (b) 7.00 4.00 $ 10.00 Variable costs per unit (c) 2.00 1.00 $ 6.00 Income statements Sales revenue (a x b) $840,000 $864,000 $720,000 Variable costs (a x c) (240,000) (216,000) (432,000) Contribution margin 600,000 648,000 288,000 Fixed costs (480,000) (540,000 (120,000) Net income $120,000 $108,000 $168,000 Required a. Determine the margin of safety as a percentage for each product. Round your figures to two deci- mal points. b. Prepare revised income statements for each product, assuming a 25 percent increase in the bud- geted sales volume. c. For each product, determine the percentage change in net income that results from the 25 percent increase in sales. Which product has the highest operating leverage? Round your figures to two decimal points. d. Assuming that management is pessimistic and risk averse, which product should the company add to its cosmetics line? Explain your answer. e. Assuming that management is optimistic and risk aggressive, which product should the company add to its cosmetics line? Explain your