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, varlable expenses are high,

totaling $$15\mathrm{.}00$ per ball, of which $60\%$ is direct labor cost.

Last year, the company sold $31,750$ 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 varlable 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, $$97,700,$ 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 varlable expenses per ball by $40\mathrm{.}00\%,$ but it would cause fixed expenses

per year to double. If the new plant is bullt, 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 bullt, how many balls will have to be sold next year to earn the same net operating

income, $$97,700,$ as last year?

b$.$ Assume the new plant is bult and that next year the company manufactures and sells $31,750$ balls $($the

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

degree of operating leverage.Complete this question by entering your answers in the tabs below.

Compute $($a$)$ last year's CM ratio and the break$-$even point in balls, and $($b$)$ the degree of operating leverage at

sales level.

Note: Round "Unit sales to break even" up to the nearest whole unit and other answers to $2$ decimal places.