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.

Required
a. Determine the margin of safety as a percentage for each product. Round your figures to two decimal points.
b. Prepare revised income statements for each product, assuming a 25 percent increase in the budgeted sales volume.
c. For each product, determine the percentage change in net income that results from the 25 percent increase in sales. Which product has the highest operating leverage? Round your figures to two decimal points.
d. Assuming that management is pessimistic and risk averse, which product should the company add to its cosmetics line? Explain your answer.
e. Assuming that management is optimistic and risk aggressive, which product should the company add to its cosmetics line? Explain your answer.

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Relevant Information Bath Oll 216,000 Skin Cream Color Gel 72,000 10.00 $6.00 Budgeted sales in units (a) Expected sales price (b) Variable costs per unit (o) Income statements Sales revenue (a x b) Variable costs (ax c) Contribution margin Fixed costs Net income 120,000 $7.00 $2.00 4.00 $1.00 $840,000 600,000 120,000 (240,000 216,000 (432.000) 648,000 (480,000 540,000 (120,000) 108,000 864,000 $720,000 288,000 168,000