Use the following Income Statement for Questions # 1 and # 2: Trek Bicycle Co. Contribution Income Statement Total Per Unit Percent Sales (8,000 bicycles) $2,000,000 $250 100% Less variable expenses 1,200,000 150 60 Contribution margin 800,000 $100 40% Less fixed expenses 800,000 Net operating income (loss) $ 0 1. Trek is considering an option (Plan A) to increase sales. What is the profit impact if Trek can increase unit sales from 8,000 to 11,000 bicycles by using higher quality raw materials, thus increasing variable costs by $20 per bicycle? Show your answer by preparing an updated Income Statement below. Trek Bicycle Co. Plan A Contribution Income Statement Total Per Unit Percent Sales (11,000 bicycles) Less variable expenses Contribution margin Less fixed expenses Net operating income (loss) 2. Refer back to the original income statement on the top of page 1 (NOT your answer to Question #1). Trek is considering another option (Plan B) to increase sales. a) What is the profit impact if Trek can increase unit sales from 8,000 to 11,000 bicycles by increasing its advertising budget by $220,000 (fixed expense). Show your answer by preparing an updated Income Statement below. Trek Bicycle Co. Plan B Contribution Income Statement Total Per Unit Percent Sales (11,000 bicycles) Less variable expenses Contribution margin Less fixed expenses Net operating income (loss) b) A companys profits are more sensitive to changes in sales when its Operating Leverage is higher. Operating Leverage = Contribution Margin Net Income Under which option is Treks Operating Leverage Higher? Plan A or Plan B? Show your work. c) If Trek is confident that its can exceed the projected level of 11,000 bicycles which Plan should it implement? Select one AND ALSO EXPLAIN WHY: Plan A or Plan B Why? d) If Trek is concerned that its sales may not reach the projected level of 11,000 bicycles which Plan should it implement ? Select one AND ALSO EXPLAIN WHY: Plan A or Plan B Why?