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 $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 38,000 of these balls, with the following results: Sales (38,000 balls) $ 950,000 Variable expenses 570,000 Contribution margin 380,000 Fixed expenses 264,000 Net operating income $ 116,800 OOK int Print rences 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 $3.00 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? 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, $116,000, 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 40.00%, 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, $116,000, as last year? b. Assume the new plant is built and that next year the company manufactures and sells 38,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage. Ework Regression 3 Dummy Variables Hint(s) Check My Work 2. A recent 10-year study conducted by a research team at the Great Falls Medical School was conducted to assess how age, systolic blood pressure, and smoking relate to the risk of strokes. Assume that the following data are from a portion of this study, Risk Is interpreted as the probability (times 100) that the patient will have a stroke over the next 10-year period. For the smoking variable, define a dummy variable with 1 indicating a smaker and indicating a nonsmoker. Systolic Blood Smoker Risk Age Pressure 12 57 150 No 26 60 165 No 11 59 155 No 57 86 170 Yes 28 59 196 Yes 50 76 189 Yes 12 56 155 Yes 32 78 120 No 37 80 135 No 15 78 98 No 22 71 152 No 36 70 173 Yes 15 67 135 Yes 48 77 209 Yes 14 60 199 No 36 82 Yes 119 166 8 65 No Risk Age Systolic Blood Pressure Smoker 12 57 150 No 26 60 165 No 11 59 155 57 86 170 Yes 28 59 196 Yes 50 76 189 Yes 17 56 155 Yes 32 78 120 No 37 80 135 No 15 78 98 No 22 71 152 No 36 70 173 Yes 15 67 135 Yes 48 77 209 Yes 14 60 199 No 36 82 119 Yes 8 65 166 No 34 82 125 No 3 61 117 No 39 60 208 Yes (c) What is the probability of a stroke over the next 10 years for Art Speen, a 65-year-old smoker who has a systolic blood pressure of 1757 If required, round your answer to two decimal places. Do not round Intermediate calculations