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Check my work Exercise 6-9 Compute and Use the Degree of Operating Leverage (L06-8) Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows Percent of Sales 100% Sales Variable expenses Contribution margin Fixed expenses Het operating income Amount 5 141,800 56,400 34,600 18.000 66,600 6ex Required: 1. What is the company's degree of operating leverage? 2. Using the degree of operating leverage, estimate the impact on net operating income of a 27% increase in sales. 3. Construct a new contribution format income statement for the company assuming a 27% increase in sales, Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required a What is the company's degree of operating leverage (Round your answer to 2 decimal places.) Dogen of operating ang Required 2 > Problem 6-20 CVP Applications: Break-Even Analysis; Cost Structure; Target Sales (LO6-1, LO6-3, LO6-4, LO6-5, LO6-6, LO6-8] 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 heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 60,000 of these balls, with the following results: Sales (60,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income $ 1,500,000 900,000 6e0,000 375,00 $ 225,000 Required: 1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year's sales level 2. Due to an increase in labor rates the company estimates that next year's 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 point in balls? 3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls withhave to be sold next year to earn the same net operating income. $225,000, as last year? 4. Reler 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 as last year (as computed in requirement 1a). 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? at the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $225,000, as last year? b. Assume the new plant is built and that next year the company manufactures and sells 60,000 balls (the same number as sold last year) Prepare a contribution format income statement and compute the degree of operating leverage Check my we Exercise 6-10 Multiproduct Break-Even Analysis (L06-9) Lucido Products markets two computer games Claimjumper and Makeover. A contribution format income statement for a recent month for the two games appears below Sales Variable expenses Contribution margin Fixed expenses Net operating incone claimjumper $ 100,000 37,000 $ 63,000 Makeover $ 50,000 8.dee $ 42, eee Total $ 150,000 45,000 105,000 82 530 $ 22,470 Required: 1. What is the overall contribution margin (CM) ratio for the company? 2 What is the company's overall break-even point in dollar sales? 3. Prepare a contribution format income statement at the company's break-even point that shows the appropriate levels of sales for the two products. Exercise 6A-1 High-Low Method (L06-10) The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical costs of the hotel and the number of occupancy-days over the last year. An occupancy-day represents a room rented for one day. The hotel's business is highly seasonal, with peaks occurring during the ski season and in the summer. Month January February March April May June Occupancy Days 3,250 3,470 3,660 1,760 1,350 4,350 3,280 1.610 700 1,300 1,640 2,220 Electrical Costs $ 9,660 $10,185 $10,36 $ 6,160 $4,725 $11,575 $ 9,765 $ 5,635 $ 2,450 $ 4,550 $ 5,740 $ 7,770 July August September October November December Required: 1. Using the high-low method, estimate the fixed cost of electricity per month and the variable cost of electricity per occupancy-day. (Do not round your intermediate calculations. Round your Verloble cost answer to 2 decimal places and Fixed cost element answer to nearest whole dollar amount.) I Variable cost of electricity Fixed cost of electricity per occupancy-day per month