Question
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 36,000 of these balls, with the following results:
Sales (36,000 balls) | $ | 900,000 |
Variable expenses | 540,000 | |
Contribution margin | 360,000 | |
Fixed expenses | 263,000 | |
Net operating income | $ | 97,000 |
5. 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 40.00%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the companys new CM ratio and new break-even point in balls?
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