Northwood Company manufactures basketballs. The company has a ball that sells for $25. At presente ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $ver ball, of which 60% is direct labor cost Last year, the company sold 30,000 of these balls, with the following results: 12:10 Sales (30,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income $750,000 450,000 300,000 210.000 $ 90,000 OK Last year, the company sold 30,000 of these balls, with the following results: Sales (30,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income $ 750,000 450.000 300,000 210,000 $ 90,000 Required: 1. Compute (a) last year's CM ratio and the break-even point 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 per ball . If this price per ball repains constant at $25, what will be next year's CM ratio and the break-even point Jobs 3. Refer to the data in (2) above. If the expectar change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income $90,000, as last year? 4. Refer again to the data in (2) above. Theinresident feels that the company must raise the selling price of its basketballs. Ir Northwood Company wants to maintaihe same CM ratio as last year (os computed in requirement 18), whot selling price per ball must it charge next year to cover the creased labor costs? 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%, but it would cause fixed expenses per year to double. If the new plant is bullt, what would be the company's new ratio and new break-even point in balls? 6. Refer to the data in (5) obite a. If the new plant is by how many boils will have to be sold next year to earn the same net operating income, $90,000, as last year? b. Assume the built and that next year the company manufactures and sells 30,000 balls (the same number as sold last PROormat income statement and compute the degree of operatina leverace. year). Prepare a contribu Complete this question by entering your answers in the tabs below. Red) Rea 1 Reg 2 Regs Reo GA Reg 68 Compute(a) last year's CM ratio and the sak.even point in balls, and (b) the degree of operating leverage at last year's sales level. (Round "Degree of operating Average to 2 decimal places) CM Un sales to break even (bats Degree of operating overige Re Reg 2 >
