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Northwood Company manufactures basketballs. The company has a ball that sells for $ 2 5 . At present, the ball is manufactured in a small

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 $15.00 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
$3.00 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?
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 1a), 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 40.00%, 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.
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