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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
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 $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 30,250 of these balls, with the following results: Sales (30,250 balls) $ 756,250 Variable expenses 453,750 Contribution margin 302,500 Fixed expenses 211,400 Net operating income $ 91,100 Required: Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last years sales level. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per
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