Keep-It-All Co. produces and sells two models of luggage bags: Basic and Premium. The demand for both models has been steady over the years. The following data pertains to Basic and Premium model for the financial year 2016: However, as the inflation kicks in, the production manager expects that the cost of bags to increase by 10% in 2017 and the demand for the bags may also be affected. The annual fixed costs are not expected to change. The Chairman of Keep-It-All, Kristina Larson, is very concerned that inflation may squeeze the company's probability. At the same time, Kristina feels committed to the current selling price, and fears that lowering the quality of the luggage bags in the face of rising costs would be an unwise marketing move. 1. Calculate the operating income for 2016. 2. Based on your Requirement 1, calculate the operating leverage of the company. Why operating leverage is important to managers? 3. If the production manager had perfect forecasting ability and the demand for Premium model is expected to decrease by 5% in 2017, a. By how much will the company's projected operating income decrease? b. Calculate the annual break-even point (in units and sales) for Basic and Premium for 2017. c. How many units of Basic and Premium must be sold in 2017 to earn a similar operating income as for 2016? d. In an attempt to improve the company's profitability, Kristina Larson has proposed that the sales commission for both models to be eliminated. To