Chap 11 Probs 28 & 29 G Help Save & Exit Submit Saved Check my work 2 Hampton Co

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Chap 11 Probs 28 & 29 G Help Save & Exit Submit Saved Check my work 2 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 information and budgeted annual income statements for each of the products follow 10 points Skin Cream 118,8ee Relevant Information Bath 0il 198,8ee Color Gel 78,0ee 12 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 Skipped e Book $ 936,88e 236,ee0) 826,0ee 504,608e $ 99e,e8e 396,888 $ 116,98e 624, 8ee) (280,e (92,988) $322,8ee $228,ee8 Requirec 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 c. For each product, determine the percentage change in net income that results from the 20 percent increase in sales 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? Complete this question by entering your answers in the tabs below Prev 2012 ". Next > Hill

Explanation / Answer

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4. if company is risk averse and pessimistic, it would choose product which has an early break even point and highest margin of safety. in this case, it is Color Gel with 71% margin of safety .

5.  if company is risk agressive and optimistic, it would choose product which has a higher rate of return and lowest highest margin of safety. In this case, it is bath Oil with 29% margin of safety.

Particulars Skin Cream Bath Oil Color Gel Budgeted Units        118,000    198,000       78,000 Expected Sales Price   A 9 5 12 Variable Cost    B 2 3 8 Contribution    A-B 7 2 4 Contribution        826,000    396,000    312,000 Fixed Costs        504,000    280,000       92,000 Net Income        322,000    116,000    220,000 Break Even Sales (units)          72,000    140,000       23,000 (Fixed costs/contribution per unit) Break Even Sales % 61% 71% 29% Margin of Safety % 39% 29% 71% 2. Revised Income Statement Particulars Skin Cream Bath Oil Color Gel Budgeted Units          141,600          237,600            93,600 Expected Sales Price   A                       9                       5                    12 Variable Cost    B                       2                       3                       8 Contribution    A-B                       7                       2                       4 Contribution          991,200          475,200          374,400 Fixed Costs          504,000          280,000            92,000 Net Income          487,200          195,200          282,400

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