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 64,000 of these balls, with the following results: Sales (64,000 balls) Variable expenses Contribution margin Pixed expenses $1,600,000 960,000 640,000 427,000 213,000 Required: 1. 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 2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per ball. If this change takes place and the selling price per ball remains constant at $25.00, what will be next year's CM ratio and the 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 wll have to be sold next year to earn the same net operating income, $213,000, as last year? 4. Refer again to the data in (2) above. The president feels that the company must ralse the selling price of its basketballs. If Northwood Company must it c wants to maintain the same CM ratio as last year (as computed in requirement 1a), what selling price per ball e next year to cover the increased labor costs? 5. Refer fo the original data. The company is discussing the construction of a new, automated manufacturing plant. The new ar to double. If the new plant is built, what would slash variable ex would be the company's new CM ratio and new break-even point in balils? 6. Refer to the data in (5) above penses per ball by 4000%, but it would cause fixed expenses per ye ld next year to earn the same net operating income, $213,000, as last year? b. Assume the new plant is built and that next year the company manufactures and sells 64,000 balls (the same number as sold year). Prepare a contribution format income statement and compute the degree of operating leverage. a. If the new plant is bulit, how many balls will have to be sol Complete this question by entering your answers in the tabs below K Prev 2 of 1 Next>