3. Rundle 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)
|
126,000
|
206,000
|
86,000
|
|
Expected sales price (b)
|
$
|
8
|
$
|
6
|
$
|
13
|
|
Variable costs per unit (c)
|
$
|
2
|
$
|
4
|
$
|
9
|
|
Income statements
|
|
Sales revenue (a × b)
|
$
|
1,008,000
|
$
|
1,236,000
|
$
|
1,118,000
|
|
Variable costs (a × c)
|
(252,000
|
)
|
(824,000
|
)
|
(774,000
|
)
|
|
Contribution margin
|
756,000
|
412,000
|
344,000
|
|
Fixed costs
|
(576,000
|
)
|
(320,000
|
)
|
(108,000
|
)
|
|
Net income
|
$
|
180,000
|
$
|
92,000
|
$
|
236,000
|
Determine the margin of safety as a percentage for each product. (Round your answers to whole percentage values.)
For each product, determine the percentage change in net income that results from the 20 percent increase in sales. (Round your answers to whole percentage values.)