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:

Requlred:

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 remalns 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, $$97,700,$ 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 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, $$97,700,$ as last

year?

b$.$ Assume the new plant is bullt 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.

Due to an increase in labor rates, the company estimates that next year's variable 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? $($Round $"$CM ratio" to $2$ decimal places and round "Unit sales to break even" up to the nearest whole

unit.$)$

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