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 $1500 per ball of which 60% Is direct labor cost. Last year, the company sold 58,000 of these balls, with the following results Sales (58,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income $ 1,450,088 870, eee 580,000 374,00 $ 286,000 Req1 Reg 2 Reg 3 Reg 4 Reg 5 Req GA Reg 68 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. (Round "Unit sales to break even" to the nearest whole unit and other answers to 2 decimal places.) CM Ratio Unit sales to break even Degree of operating loverage 40.00 7.400 balls 2.82 Reg: Reg 2 Reg 3 Reg 4 Reqs Reg 6A Reg 6B Refer to the data in Required (2). 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, $206,000, as last year? (Round your answer to the nearest whole unit.) Number of balls 40,000 Req 1 Reg 2 Reg 3 Reg 4 Reqs Re GA Reg 68 Refer again to the data in Required (2). 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 la), what selling price per ball must it charge next year to cover the increased labor costs? (Round your answer to 2 decimal places.) Selling price s 18.00 Reg 1 Req2 Reg 3 Reg 4 Reqs Req 6A Reg 6B 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 (Round CM Ratio" to 2 decimal places and "Unit sales to break even to the nearest whole unit.) Show less 64.00 CM Ratio Unit sales to break oven 0,250 balls Reg 1 Reg 2 Reg 3 Reg 4 Req5 Reg 6 Reg 68 If the new plant is built, how many balls will have to be sold next year to earn the same net operating incomt, $206.000, as last year? (Round your answer to the nearest whole unit.) Number of balls 22,125 Assume the new plant is built and that next year the company manufactures and selis 58,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage (Round "Degree of operating leverage" to 2 decimal places.) Northwood Company Contribution Income Statement Sales 1.450,000 Variable expenses 522,000 Contribution margin 928,000 Fixed expenses 148,000 3 Net operating incomo $ 780,000 . . Degroo of operating leverage 1.19
