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 32,000 of these balls, with the following results:

Sales (32,000 balls) $800,000

Variable expenses $480,000

Contribution margin $320,000

Fixed Expense $211,000

Net operating income $109,000

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?

Answer: CM Ratio: 28% Unit sales to break even 30,143 balls

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, $109,000, as last year?