Northwood Company manufactures basketballs. The company has a boll that sells for $25. At present, the ball is manufactured in a small plant that relies heavly 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 32,000 of these balls, with the following results: Required: 1. Compute (a) last year's CM ratio and the breok-even point in balls, and (b) the degree of operating leverage ot 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 bals? 3. Refer to the data in requirement 2. If the expected cirange in variable expenses takes ploce, how many balls will have to be sold next yeat to earn the same net operating income, $98,800, as last year? 4. Refer again to the data in requirement 2 . The president feels that the company must raise the selling price of its bosketballs. If Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement ta), what selling price per ball must it charge next yeat 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 varlable 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 requirement 5. a. If the new plant is built, how many balls will have to be sold next year to eam the same net operating income, $98.800, as last year? b. Assume the new plant is built and that next year the company manufactures and sells 32,000 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.) 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 $3.00 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? (Round "CM ratio" to 2 decimal places and round "Unit sales to break even" up to the nearest whole unit.) Complete this question by entering your answers in the tabs below. Refer to the data in requirement 2. 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, $98,800, as last year? (Round your answer up to the nearent whole unit.) Complete this question by entering your answers in the tabs below. Refer again to the data in requirement 2. 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 ta), whtrat selling price per ball must it charge next year to cover the increased labor costs? (Round your answer to 2 decimal places.) Complete this question by entering your answers in the tabs below. 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? (Round "CM ratio" to 2 decimal places and round "Unit sales to break even" up to the nearest whole unit.) Complete this question by entering your answers in the tabs below. Refer to the data in requirement 5. If the new plant is bulit, how many balls will have to be sold next year to eam the same net operating income, $98,800, as last year? (Round your answer up to the nearest whole unit.) Complete this question by entering your answers in the tabs below. Refer to the data in requirement 5. Assume the new plant is built and that next year the company manufactures and sells 32,000 balis (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage. (Round "Degree of operating leverage" to 2 decimal places.)
