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Ireland Company - Managerial Accounting Decisions

A. Determine the margin of safety as a percentage for each product.
B. Prepare revised income statements for each product, assuming a 20 percent increase in the budgeted sales volume.
C. For each product, determine the percentage change in net income that results from the 20 percent increase in sales. Which product has the highest operating leverage?
D. Assuming that management is pessimistic and risk averse, which product should the company add to its cosmetic 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.


Solution Preview

See the attached sheet for A, B & C


Margin of Safety % = {(expected sales - breakeven sales) / breakeven sales} * 100

Breakeven sales in units = fixed cost / contribution per unit

Contribution margin is a measure of operating ...

Solution Summary

The solution computes and shows Ireland Company revised income statements, operating leverage, and different scenario of increase in sales, margin of safety,degree of operating leverage.