Northwood Company manufactures basketbolls. 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 per ball, of which 60% is direct labor cost Last year, the company sold 30,000 of these bolls, with the following results: Salee (30,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income $750,000 450.000 300,000 210,000 390,000 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 per ball. If this change takes place and the selling price per ball remains constant of $25, what will be next year's CM ratio and the break-even point 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, $90,000, as last year? 4 Refer again to the doto 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 las computed in requirement to), what selling price per ball 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%, 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, $90,000, as last year? b. Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating loverage Complete this question by entering your answers in the tabs below. Reg 1 Req 2 Reg 3 Reg 4 Reg 5 Req 6A Req 68 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 "Degree of operating leverage" to 2 decimal places.) CM ratio Unit sales to break even Degree of operating leverage % balls Reg 2 > Complete this question by entering your answers in the tabs below. Reg 1 Req 2 Reg 3 Reg 4 Reg 5 Req 6A Req 6B Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3 per ball. If this change takes place and the selling price per ball remains constant at $25, what will be next year's CM ratio and the break-even point in balls? % CM Ratio Unit sales to break even balls Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4 Reg 5 Red GA Reg 6B 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, $90,000, as last year? (Round your answer to the nearest whole unit.) Number of balls Complete this question by entering your answers in the tabs below. Req 6B Reg 1 Reg 2 Reg 3 Reg 4 Reg 5 Req6A 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 tabor costs? Selling price (Reg 3 Reg6 > Complete this question by entering your answers in the tabs below. Req1 Reg 2 Reg 3 Reg 4 Reg 5 Reg 6A Reg 6B 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%, 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? % CM Ratio Unit sales to break even balls Complete this question by entering your answers in the tabs below. Reg 2 Reg 3 Reg 4 Req 6A Reg 6B Reg 1 Reg 5 If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $90,000, as last year? Number of balls Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4 Reg 5 Req 6A Reg 6B Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage. Northwood Company Contribution Income Statement Degree of operating leverago
