Northwood Company manufactures basketball selling for $25 per ball in a small plant heavily relying on direct labor. Thus, the company's variable expenses are high totaling $15 per ball of which 60% is direct labor cost. Last year, the company sold 30,000 balls with the following results: 1. Compute (a) last year's contribution margin (CM) ratio and break-even point (BEP) in units and (B) the degree of operating leverage at the last year's sales level. 2. Due to an increase in labor rate, the company estimates next year's variable expenses will increase by $3 per ball. If this change takes place and the selling price per ball remains constant at $25, what will be the CM ratio and BEP in units next year? 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 of $90,000 as last year? 4. Refer again to the data in (2) above. The president feels that the company must raise the selling price of the basketballs. If Northwood Company want to maintain the same CM ratio as last year, what selling price per ball that it should charge next year to cover the increased labor costs? 5. Refer to the original data of the last year as above. The company is discussing the construction of a new, automated manufacturing plant. The new plant would reduce the variable expenses per ball by 40%, but it would cause fixed expenses per year to double (i.e., $420,000). If the new plant is built, what would be the company's new CM ratio and new BEP in balls? 6. Refer to the data in point (5) above. If the new plant is built, how many balls will have to be sold next year to eam the same net operating income of $90,000 ? 7. Assume the new plant is built. The company manufactures and sells 30,000 balls next year (the same number as sold last year). Prepare a contribution income statement and compute the degree of operating leverage. How will the operating risk of the company change next year as is result of the new plant