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 64,000 ofthese balls, with the following results: Sales (64,000 balls) S 1,600,000 Variable expenses 960 , 000 Contribution margin 640 , 000 Fixed expenses 427 , 000 Net operating income $ 213, 000 I Required: 1. Compute (a) last year's CM ratio and the breakeven point in balls, and (b) the degree of operating leverage at last year's 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 will 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 raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement 1a), what selling price per ball must it charge next year to cover the increased labor costs? ._.__ ._ "\""a- .._..__,__.. __ -_.-. . .._.__._-_. ._.__. -_-__. 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 company's new CM ratio and new breakeven point in balls? 6. Refer to the data in (5) above. a. Ifthe new plant is built, how many balls will have to be sold 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 last year). Prepare a contribution format income statement and compute the degree of operating leverage. a. ______________________ Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year's sales level. (Round "Unit sales to break even" to the nearest whole unit and other answers to 2 decimal places.) CM Ratio Unit sales to break even Degree of operating leverage 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? (Round "CM Ratio" to 2 decimal places and "Unit sales to break even" to the nearest whole unit.) CM Ratio Unil sales to break even 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, $213,000, as last year? (Round your answer to the nearest whole unit.) _:I ______________________ uuun Refer again to the data in (2) above. The president feels that the company must raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement 1a), what selling price per ball must it charge next year to cover the increased labor costs? (Round your answer to 2 decimal places.) :| 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 xed expenses per year to double. If the new plant is built, what would be the company's new CM ratio and new break-even point in balls? (Round \"CM Ratio\" to 2 decimal places and "Unit sales to break even" to the nearest whole unit.) Show IeSSA CM Ratio Unit sales to break even Juuuul ______________________ uI If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $213,000, as last year? (Round your answer to the nearest whole unit.) _:I 4 u u . . u u u. ...................... Assume the new plant is built and that next year the company manufactures and sells 64,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage. (Round "Degree of operating leverage" to 2 decimal places.)
