Northwood Company manufactures basketballs. The company has a ball that sells for $35. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $21.00 per ball, of which 60% is direct labor cost.

Last year, the company sold 41,000 of these balls, with the following results:

Sales (41,000 balls) $1,435,000

Variable expenses861,000

Contribution margin574,000

Fixed expenses420,000

Net operating income$154,000