Malverns Bicycle Co is a company that manufactures bicycles.

Total Fixed Costs: $1,150,000

Variable Costs: $105/bike

Selling Price: $230/bike

Sales Volume: 14,000

Required:

(a) Discuss the two formats of income statement that can be used for a manufacturing company using the knowledge of gross margin and contribution margin.

(b) Calculate the unit contribution margin and break even points in units.

(c) Calculate the target operating profit.

(d) Calculate the contribution margin ratio and target sales revenue.

(e) Use the Degree of Leverage (DOL) to calculate the new operating profit if sales volume falls by 10%.