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 44,000 of these balls, with the following results Sales (44,000 balls) $ 1,100,000 Variable expenses 660,000 Contribution margin 440,000 Fixed expenses 317,000 Net operating income $ 123,000 Required 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 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 (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 balls Degree of operating leverage Req 1 Req 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 Ratio to 2 decimal places and Unit sales to break even to the nearest whole unit ) CM Ratio Unit sales to break even balls Req 1 Req 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, $123,000, as last year Number of balls Req 2 Req 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 Req 3 Selling price Req 3 Req 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 CM Ratio Unit sales to break even balls Req 4 Req 6A 6 Refer to the data in (5) above a If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $123,000, as last year Question What is the number of balls b Assume the new plant is built and that next year the company manufactures and sells 44,000 balls (the same number as sold last year) Prepare a contribution format income statement and compute the degree of operating leverage Northwood Company Contribution Income Statement Degree of operating leverage Req 6A QC CS 184684 Brewer 8e Rechecks 2018 09 04 Brewer 8e Rechecks 2019 08 29

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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 44,000 of these balls, with the following results:


Sales (44,000 balls)	$	1,100,000
Variable expenses		660,000
Contribution margin		440,000
Fixed expenses		317,000
Net operating income	$	123,000

Required:

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.

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. (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		balls
Degree of operating leverage

Req 1
Req 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?

Ratio" to 2 decimal places and "Unit sales to break even" to the nearest whole unit.)


CM Ratio		%
Unit sales to break even		balls

Req 1
Req 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, $123,000, as last year?

Number of balls

Req 2
Req 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?

Req 3

Selling price

Req 3
Req 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?


CM Ratio		%
Unit sales to break even		balls

Req 4
Req 6A

6. Refer to the data in (5) above.

a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $123,000, as last year?

Question: What is the number of balls?

b. Assume the new plant is built and that next year the company manufactures and sells 44,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage.