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Problem 11-29 Margin of safety and operating leverage Hampton Company is considering the addition of a new product to its cosmetics line. The has three distinctly different options: a skin cream, a bath oil, or a hair coloring gel. Relevant inor mpa orma- tion and budgeted annual income statements for each of the products follow Relevant Information Bath Oil 216,000 1.00 Skin Cream Color Gel 72,000 Budgeted sales in units (a) Expected sales price (b) Variable costs per unit (c) 2.00 Income statements Sales revenue (a b) Variable costs (a c) 120,000 $7.00 4.00$ 10.00 $6.00 $840,000 $864,000 $720,000 (240,000) (216,000) (432.000) 648,000 (480,000) (540,000) (120,000) $120,000 $108,000 $168,000 288,000 Contribution margin Fixed costs 600,000 Net income Required a. Determine the margin of safety as a percentage for each product. Round your figures to two deci- b. Prepare revised income statements for each product, assuming a 25 percent increase in the bud- c. For each product, determine the percentage change in net income that results from the 25 percent d. Assuming that management is pessimistic and risk averse, which product should the company ad e. Assuming that management is optimistic and risk aggressive, which product should the company mal points. geted sales volume. increase in sales. Which product has the highest operating leverage? Round your figures to two decimal points. to its cosmetics line? Explain your answer add to its cosmetics line? Explain your