Use the following Income Statement for Questions # 3 and # 4:Burton Snowboard Co.Contribution Income StatementTotalPer UnitPercentSales (800 snowboards)………$200,000$250100%Less variable expenses………. 120,000 150 60 Contribution margin…………..80,000$100 40%Less fixed expenses…………… 80,000Net operating income (loss)….$ 0 3. Burton is considering an option (Plan A) to increase sales. What is the profit impact if Burton can increase unit sales from 800 to 1100 snowboards by using higher quality raw materials, thus increasing variable costs by $20 per snowboard? Show your answer by preparing an updated Income Statement below.Burton Snowboard Co.Plan AContribution Income StatementTotalPer UnitPercentSales (1100 snowboards)…….Less variable expenses……….Contribution margin…………..Less fixed expenses……………Net operating income (loss)….4. Refer back to the original income statement above (in black not blue). Burton is considering another option (Plan B) to increase sales. a) What is the profit impact if Burton can increase unit sales from 800 to 1100 by increasing its advertising budget by $22,000 (fixed expense). (The variable cost remains at $150 / unit). Show your answer by preparing an updated Income Statement below.Burton Snowboard Co.Plan BContribution Income StatementTotalPer UnitPercentSales (1100 snowboards)…….Less variable expenses……….Contribution margin…………..Less fixed expenses……………Net operating income (loss)….b) A company’s profits are more sensitive to changes in sales when it’s Operating Leverage is higher. Operating Leverage = Contribution Margin Net Income Under which option is Burton’s Operating Leverage Higher? Plan A or Plan B?Show your work.c) If Burton is concerned that its sales may not reach the projected level of 1100 snowboards – which Plan should it implement ? Select one AND ALSO EXPLAIN WHY: Plan A or Plan B Why?d) If Burton is confident that its can exceed the projected level of 1100 snowboards – which Plan should it implement? Select one AND ALSO EXPLAIN WHY: Plan A or Plan B Why?
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