4. Rundle Company is considering the addition of a new product to its cosmetics line. The company…

4. 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

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

RUNDLE COMPANY

Income Statements

Skin Cream

Bath Oil

Color Gel

Sales revenue

Variable costs

Contribution margin

$0

$0

$0

Fixed cost

Net income

$0

$0

$0

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