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 $31,500$ 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 varlable expenses takes place, how many balls will

have to be sold next year to earn the same net operating income, $$96,600,$ 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 bullt, what would be the company's new CM ratlo and new break$-$even point In balls?

$6.$ 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,

$$96,600,$ as last year?

b$.$ Assume the new plant is bull and that next year the company manufactures and sells $31,500$ 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.

Req $1$

Req $3$

Req $4$

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

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