3 Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured In a small plant that relies heavy on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost 12 points Last year, the company sold 36,000 of these balls, with the following results: $ 900,000 540,000 Contribution margin $ 97,000 Required: 1. Compute (a) last years CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last years sales level 2. Due to an increase in labor rates, the company estimates that next years variable expenses will increase by $3.00 per ball. If this change takes place and the selling price per ball remains constant at $25.00, what will be next year's CM ratio and the break-even Reterences point in balls? 3. Refer to the data in (2) above. If the expected change in veriable expenses takes place, how many balls will have to be sold next income, $97000, as last year? year to earn the same net o 4. Refer again to the data in (2) above. The president feels that the company must raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio es last year (es computed in requirement la), what selling price per ball must it charge next year to cover the increased labor costs? 5. Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40.00%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company's new CM ratio and new break-even point in balls? 6. Refer to the data in (5) above a. If the new plant is built, how many bals will have to be sold next year to earm the same net operating income. $97000, as last year? b. Assume the new plant is built and that next year the company manufactures and sells 36,000 balls (the same number as sold last year). Prepare a contribution format income statement and Compute the degree of operating leverage. 3 Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured In a small plant that relies heavy on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost 12 points Last year, the company sold 36,000 of these balls, with the following results: $ 900,000 540,000 Contribution margin $ 97,000 Required: 1. Compute (a) last years CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last years sales level 2. Due to an increase in labor rates, the company estimates that next years variable expenses will increase by $3.00 per ball. If this change takes place and the selling price per ball remains constant at $25.00, what will be next year's CM ratio and the break-even Reterences point in balls? 3. Refer to the data in (2) above. If the expected change in veriable expenses takes place, how many balls will have to be sold next income, $97000, as last year? year to earn the same net o 4. Refer again to the data in (2) above. The president feels that the company must raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio es last year (es computed in requirement la), what selling price per ball must it charge next year to cover the increased labor costs? 5. Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40.00%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company's new CM ratio and new break-even point in balls? 6. Refer to the data in (5) above a. If the new plant is built, how many bals will have to be sold next year to earm the same net operating income. $97000, as last year? b. Assume the new plant is built and that next year the company manufactures and sells 36,000 balls (the same number as sold last year). Prepare a contribution format income statement and Compute the degree of operating leverage.