Question
Northwood Company manufactures basketballs. The company has a ball that sells for $42. At present, the ball is manufactured in a small plant that relies
Northwood Company manufactures basketballs. The company has a ball that sells for $42. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $25.20 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) | $ | 2,520,000 |
Variable expenses | 1,512,000 | |
Contribution margin | 1,008,000 | |
Fixed expenses | 840,000 | |
Net operating income | $ | 168,000 |
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 it would cause fixed expenses per year to increase by 88%. If the new plant is built, what would be the companys new CM ratio and new break-even point in balls? (Do not round intermediate calculations. Round up your final break even answers to the nearest whole number.)
Refer to the data in (5) above
Compute the degree of operating leverage. (Do not round intermediate calculations and round your final answer to 2 decimal places.) |
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