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 $32,750$ of these balls, with the following results:

Requlred:

Compute $($a$)$ last year's CM ratlo 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 varlable expenses takes place, how many balls will have to be sold

next year to earn the same net operating Income, $$102,100,$ as last year?

Refer again to the data in requirement $2.$ The president feels that the company must ralse 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 bult, 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 bult, how many balls will have to be sold next year to earn the same net operating Income, $$102,100,$ as last

year?

b$.$ Assume the new plant is bull and that next year the company manufactures and sells $32,750$ 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 last year's

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