ACCOUNTING ; Questions in Bold are the ones i need answers to, others i have solved.

Northwood Company manufactures basketballs. The company has a standard ball that sells for 25. At present, the standard ball is manufactured in a small plant that relies heavily on direct labour workers. Thus, variable costs are high, totalling 15 per ball. Last year, the company sold 30,000 standard balls, with the following results: Sales (30,000 standard balls) 750,000 Variable expenses 450,000 Fixed expenses 210,000

a) List and discuss specific examples of variable and fixed costs for a manufacturing company like Northwood. b) Prepare the contribution profit and loss account for the year based on actual data. c) Compute (1) the CM ratio and the break-even point in balls and (2) the degree of operating leverage at last years level of sales. d) Present and discuss a graph showing the revenues and costs from a zero level of activity up to 60,000 balls sold each year. Clearly indicate the break-even point on the graph. Use Excel or similar program to draw the graph.

e) Due to an increase in labour rates, the company estimates that variable costs will increase by 3 per ball next year. If this change takes place and the selling price per ball remains constant at 25, what will be the new CM ratio and break-even point in balls? f) Refer to the data in question e) above. If the expected change in variable costs takes place, how many balls will have to be sold next year to earn the same profit (90,000) as last year? g) Refer again to the data in question e) above. The managing director feels that the company must raise the selling price on the standard balls. If Northwood Company wants to maintain the same CM ratio as last year, what selling price per ball must it charge next year to cover the increased labour costs? h) Refer to the original data. The company is discussing the construction of a new, automated plant to manufacture the standard balls. The new plant would slash variable costs per ball by 40%, but it would cause fixed costs to double in amount per year. If the new plant is built, what would be the companys new CM ratio and new break-even point in balls? Explain how the graph under question d) changes (show the change in the original graph). At which level of volume the automated plant becomes cheaper than the original manufacturing? What if labour rates increase as in question e) at which level of volume the automated plant becomes cheaper? i) Refer to the data in question h) above. If the new plant is built, how many balls will have to be sold next year to earn the same profit (90,000) as last year? Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number as sold last year). Prepare a contribution profit and loss account and compute the degree of operating leverage. Top management is confident that with a more intense sales effort and with a more creative advertising programme, the sales could be increased by 50% next year. What would be the expected percentage increase in profit? Use the degree of operating leverage to compute your answer. If you were a member of top manage