Thornton 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. 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) Contribution margin Fixed costs Net income Skin Cream 134,000 $ $ 8 Relevant Information Bath Oil 214,000 2 $1,072,000 (268,000) 804,000 (648,000) $ 156,000 $ $ 6 4 $1,284,000 (856,000) 428,000 (360,000) 68,000 $ $ $ Color Gel 94,000 14 10 $1,316,000 (940,000) 376,000 (124,000) 252,000 $ Required: a. Determine the margin of safety as a percentage for each product. b. Prepare revised income statements for each product, assuming a 20 percent increase in the budgeted sales volume. c1. For each product, determine the percentage change in net income that results from the 20 percent increase in sales. c2. Which product has the highest operating leverage? d. Assuming that management is pessimistic and risk averse, which product should the company add to its cosmetics line? e. Assuming that management is optimistic and risk aggressive, which product should the company add to its cosmetics line?

Thornton 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: a. Determine the margin of safety as a percentage for each product. b. Prepare revised income statements for each product, assuming a 20 percent increase in the budgeted sales volume. c1. For each product, determine the percentage change in net income that results from the 20 percent increase in sales. c2. Which product has the highest operating leverage? d. Assuming that management is pessimistic and risk averse, which product should the company add to its cosmetics line? e. Assuming that management is optimistic and risk aggressive, which product should the company add to its cosmetics line