Enzo company manufactures different types of bicycles: mountain, road, and youth. Sales of the road bikes have fallen. The firm is considering two options: (1) drop the road bike line; or (2) replace the road bike line with fat tire bikes. Price and cost data are as follows: Basketball Running Tennis golf $90 Price/unit $65 $40 $60 $45 $40 $43 Variable cost/unit $35 $50,000 $210000 $150000 Total Fixed costs $200000 15000 10000 2500 25000 Number of units If the tennis shoe is dropped, 70% of the $50000 fixed cost is avoidable. Required: a) Calculate the increase or decrease on operating income, using relevant amounts only, for option 1. Be sure to indicate if the operating profits increase or decrease. (3 marks) b) Calculate the increase or decrease on operating income, using relevant amounts only, for option 2. Be sure to indicate if the operating profits increase or decrease. (4 marks) c) Which option is best? Identify one longer term strategic issue the firm should consider before making the final decision. (2 marks) Enzo company manufactures different types of bicycles: mountain, road, and youth. Sales of the road bikes have fallen. The firm is considering two options: (1) drop the road bike line; or (2) replace the road bike line with fat tire bikes. Price and cost data are as follows: Basketball Running Tennis golf $90 Price/unit $65 $40 $60 $45 $40 $43 Variable cost/unit $35 $50,000 $210000 $150000 Total Fixed costs $200000 15000 10000 2500 25000 Number of units If the tennis shoe is dropped, 70% of the $50000 fixed cost is avoidable. Required: a) Calculate the increase or decrease on operating income, using relevant amounts only, for option 1. Be sure to indicate if the operating profits increase or decrease. (3 marks) b) Calculate the increase or decrease on operating income, using relevant amounts only, for option 2. Be sure to indicate if the operating profits increase or decrease. (4 marks) c) Which option is best? Identify one longer term strategic issue the firm should consider before making the final decision. (2 marks)