You are the Management accountant for Leather Manufacturers (Pty) Ltd. The company manufactures and sell leather products. The sales manager is constantly evaluating the possibility to introduce new products in the market. He approaches you with the following data regarding a new handbag which he wants to introduce in the market. He believes there is an annual estimate market to sell 2,500 of these new handbag.

Medium Size full leather Handbag R Estimated selling price 1,950 Leather cost 950 Material for the lining 250 Consumable costs: 150 Labour: 3 hours @ R95 per hour 285 Additional annual marketing expenses: 20,000 Additional Internal sales representative salary per month 10,000 Monthly rent of additional workspace 2,000 Additional other fixed costs 36,000 The companys criteria are that each new product must contribute 10% of the total sales value as a pre-tax profit. Required: 1. Advise the sales manager if the new handbag will comply with the companys evaluation parameters. (6 ) 2. Draft a Direct Cost Income Statement. (3) 3. Calculate the margin of safety. (1)