c. If you were a member of top management, would you have been favor of constrate $750,000 450.000 300,000 210,000 $ 90,000 PROBLEM 4-20 Various CVP Questions: Break-Even Point: Cost Structure; Target Sales Northwood Company manufactures basketballs. The company has a ball that sells for $25. AL present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling S15 per ball, of which 6096 is direct labor cost. Last year, the company sold 30,000 of these balls, with the following results: If the new plant is built, how many balls will have to be sold never to eam the sun 30,000 balls (the same number as sold last year). Prepare a caution format incus Assume the new plant is built and that next year the company manufactures and se break-even point different from the break-even pol LO4, LO5, L06, LOR] Sales (30,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income Required: 1. Compute (a) the 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 variable expenses will increase per ball next year. If this change takes place and the selling price per ball remains con stant at $25, what will be the new CM ratio and 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 will have to be sold next year to earn the same net operating income, $90,000, 25 last year? 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 as last year, 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%, but would cause fixed expenses per year to double. If the new plant is built, what would be de company's new CM ratio and new break-even point in balls? 6. Refer to the data in (5) above. a. net operating income, 890,000, as last year? b. by S3 statement and compute the degree of operating leverage. the new plant? Explain