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 yoar, the company sold 30.250 of these bails, with the following results: Required: 1. 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 soles 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 years CM ratio and the break-oven point in balls? 3. Refer to the data in requirement 2 . If the expected change in variable expenses takes ploce, how many balls will have to be sold next year to earn the same net operating income, $91,00, as last year? 4. 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 1o), what selling price per ba must it charge next year to cover the fncreased labor costs? 5. Refer to the original data. The company is discussing the construction of a new, outomated manulacturing plant. The new plant would slash variable expenses per bali by 40.00%, but it would couse fixed expenses per year to double. If the new plant is buitt, what would be the company's new CM ratio and new break-even point in balls? 6. Refer to the data in requirement 5 a. If the new plant is built, how many balls will have to be soid next year to earn the same net operating income, $9100, as iast year? b. Assume the new plant is bult and that next year the company manufactures and selis 30,250 balls fhe same number as sold iast year). Prepare a contribution format income statement and compute the degree of operating leverage 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" up to the nearest whole unit and other answers to 2 decimal places.) 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 round "Unit sales to break even" up to the nearest whole unit.) 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, $91,100, as last year? (Round your answer up to the nearest whole unit.) 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 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 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? (Round "CM Ratio" to 2 decimal places and round "Unit sales to break even" up to the nearest whole unit.) Refer to the data in requirement 5. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $91,100, as last year? (Round your answer up to the nearest whole unit.) Refer to the data in requirement 5. Assume the new plant is built and that next year the company manufactures and sells 30,250 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.)
