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\mathrm{.}00$ per ball, of which $60\%$ is direct labor cost.

Last year, the company sold $33,250$ of these balls, with the following results:

Sales $(33,250$ balls$)$ $ $831,250$

Variable expenses $498,750$

Contribution margin $332,500$

Fixed expenses $228,200$

Net operating income $ $104,300$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\mathrm{.}00$ per ball, of which $60\%$ is direct labor cost.

Last year, the company sold $33,250$ of these balls, with the following results:

Required:

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.

Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $$3\mathrm{.}00$

per ball. If this change takes place and the selling price per ball remains constant at $$25\mathrm{.}00,$ what will be next year's $CM$

ratio and the break$-$even point in balls?

Refer to the data in requirement $2.$ 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, $$104,300,$ as last year?

Refer again to the data in requirement $2.$ 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 $1$a$),$

what selling price per ball must it charge next year to cover the increased labor costs?

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 $40\mathrm{.}00\%,$ 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 break$-$even point in balls?

Refer to the data in requirement $5.$

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

$$104,300,$ as last year?

b$.$ Assume the new plant is built and that next year the company manufactures and sells $33,250$ balls $($the same

number as sold last year$).$ Prepare a contribution format income statement and compute the degree of operating

leverage.