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 per ball, of which 60% is direct labor cost. 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 in 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 change takes place and the selling price ber ball remains constant at $25, what will be next year's CM ratio and the break-even point in balls? 3. Refer to the data in (2) above. 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, $90,000, as last year? 4. Refer again to the data in (2) above. 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? 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 built, what would be the company's new CM ratio and new break-even point in balls? 6. Refer to the data in (5) above. a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income. $90,000, as last year? h Accuime the new nlant is built and that nevt vear the comnany manufartures and celle 30000 halle /the came number a cole last actice Problems Saved 3. Refer to the data in (2) above. 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, $90,000, as last year? 4. Refer again to the data in (2) above. 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 fa), what selling price per ball must it charge next year to cover the increased 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 built, what would be the company's new CM ratio and new break-even point in balls? 6. Refer to the data in (5) above. a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $90,000, as last year? b. Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number as sold la 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. Reg 1 Reg 2 Reg 3 Reg 4 Reg 5 Req 6A Req 6B 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 "Degree of operating leverage" to 2 decimal places.) % CM ratio Unit sales to break even Degree of operating leverage balls 2. Reter to the original data. The company is discussing the construction of a new, automated manufacturing plant. The would slash variable expenses per ball by 40%, but it would cause fixed expenses per year to double. If the new plant is would be the company's new CM ratio and new break-even point in balls? 6. Refer to the data in (5) above. a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $90, year? b. Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same numbe 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. Reg 1 Reg 2 Req3 Reg 4 Reg 5 Req 6A Reg 68 as Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3 per ball. If this change takes place and the selling price per ball remains constant at $25, what will be next year's CM ratio and the break-even point in balls! CM Ratio % Unit sales to break even balls Suid sias variable expenses per ball by 40%, but it would cause fixed expenses per year to double. If th. ould be the company's new CM ratio and new break-even point in balls? Refer to the data in (5) above. a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating year? b. Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the 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. Reg 1 Reg 2 Reg 3 Req 4 Reg 5 Req 6A Req 68 Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have next year to earn the same net operating income, $90,000, as last year? (Round your answer to the nearest whol Number of balls plant is built, how many balls will have to be sold next year to earn the same year? b. Assume the new plant is built and that next year the company manufactures and sells 30 year). Prepare a contribution format income statement and compute the degree of operatir Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req3 Req 4 Req 5 Req 6A Req 6B Refer again to the data in (2) above. The president feels that the company must raise the selling Northwood Company wants to maintain the same CM ratio as last year (as computed in requirem per ball must it charge next year to cover the increased labor costs? Selling price b. Assume the new plant is built and that next year the company manufactures and sel year). Prepare a contribution format income statement and compute the degree of ope Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req3 Req 4 Rear Req 6A Req Refer to the original data. The company is discussing the construction of a new, automated m- plant would slash variable expenses per ball by 40%, but it would cause fixed expenses per ye built, what would be the company's new CM ratio and new break-even point in balls? CM Ratio % Unit sales to break even balls 3 Norwood company wants to maintain the same cv rauo as last year (as computea in requirement must it charge next year to cover the increased labor costs? 5. Refer to the original data. The company is discussing the construction of a new, automated manufac would slash variable expenses per ball by 40%, but it would cause fixed expenses per year to double. would be the company's new CM ratio and new break-even point in balls? 6. Refer to the data in (5) above. a. If the new plant is built, how many balls will have to be sold next year to earn the same net opera year? b. Assume the new plant is built and that next year the company manufactures and sells 30,000 bal year). Prepare a contribution format income statement and compute the degree of operating levera Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Reg 4 Reg 5 Reqta RRRRERER Req 6B If the new plant is built, how many balls will have to be sold next year to earn the same net operating inco last year? Number of balls same b. Assume the new plant is built and that next year the company manufactures and sells 30 year). Prepare a contribution format income statement and compute the degree of operatin Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req3 Req 4 Req 5 Req 6A Req 6B Assume the new plant is built and that next year the company manufactures and sells 30,000 ball last year). Prepare a contribution format income statement and compute the degree of operating le Northwood Company Contribution Income Statement Degree of operating leverage