Problem 11-29 Margin of safety and operating leverage LO 11-4,
11-6

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Question: Problem 11-29 Margin of safety and operating leverage LO 11-4, 11-6 Carmon Company is conside…
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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 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)
112,000 192,000 72,000
  Expected sales price
(b)
$ 9.00 $ 5.00 $ 12.00
  Variable costs per
unit (c)
$ 2.00 $ 2.00 $ 7.00
  Income
statements
  Sales revenue (a ×
b)
$ 1,008,000 $ 960,000 $ 864,000
  Variable costs (a ×
c)
(224,000 ) (384,000 ) (504,000 )
  Contribution
margin
784,000 576,000 360,000
  Fixed costs (525,000 ) (375,000 ) (100,000 )
  Net income $ 259,000 $ 201,000 $ 260,000
Required
a.

Determine the margin of safety as a percentage for each product.
(Round your answers to nearest whole percent.)

Margin of safety:
Skin Cream%:
Bath Oil%:
Color Gel%:

b.

Prepare revised income statements for each product, assuming a
20 percent increase in the budgeted sales volume.

Sales revenue Skin Cream Bath Oil Color Gel
Variable costs
Contribution margin
Fixed cost
Net income
c- For each product, determine the
percentage change in net income that results from the 20 percent
increase in sales. (Round your answers to nearest whole
percent.)

Percentage change in net income Skin Cream %:
Percentage change in net income Bath OIl %:
Percentage change in net income Color Gel %:

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