Northwood Company manufactures dog collars. The company has a dog collar that sells for $35. At present, the dog collar is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $21.00 per dog collar, of which 60% is direct labor cost. Last year, the company sold 54,000 of these dog collars, with the following results: Required: 1-a. Compute the CM ratio and the break-even point in dog collars. CM Ratio Unit Sales to break even 1-b. Compute the degree of operating leverage at last year's sales level. 2. Due to an increase in labor rates, the company estimates that variable expenses will increase by $2.80 per dog collar next year. If this change takes place and the selling price per dog collar remains constant at $35.00, what will be the new CM ratio and break-even point in dog collars? CM Ratio Unit Sales to break even 3. Refer to the data in (1) above. If the expected change in variable expenses takes place, how many dog collars will have to be sold next year to eam the same net operating income, $126,000, as last year? Selling Price 5. Refer to the original data (1). The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per dog collar by 40%, but it would cause fixed expenses per year to double 89% (Hint: Multiply FC by 1.89). If the new plant is built, what would be the company's new CM ratio and new break-even point in dog collars? CM Ratio Unit Sales to break even 6. Refer to the data in (5) above. a. If the new plant is built, bow many dog collars will bave to be sold next year to earn the same net operating income, $126,000, as last year? b-1. Assume the new plant is built and that next year the company manufactures and sells 54,000 dog collars (the same number as sold last year). Prepare a contribution format income statement Northwood Company manufactures dog collars. The company has a dog collar that sells for $35. At present, the dog collar is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $21.00 per dog collar, of which 60% is direct labor cost. Last year, the company sold 54,000 of these dog collars, with the following results: Required: 1-a. Compute the CM ratio and the break-even point in dog collars. CM Ratio Unit Sales to break even 1-b. Compute the degree of operating leverage at last year's sales level. 2. Due to an increase in labor rates, the company estimates that variable expenses will increase by $2.80 per dog collar next year. If this change takes place and the selling price per dog collar remains constant at $35.00, what will be the new CM ratio and break-even point in dog collars? CM Ratio Unit Sales to break even 3. Refer to the data in (1) above. If the expected change in variable expenses takes place, how many dog collars will have to be sold next year to eam the same net operating income, $126,000, as last year? Selling Price 5. Refer to the original data (1). The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per dog collar by 40%, but it would cause fixed expenses per year to double 89% (Hint: Multiply FC by 1.89). If the new plant is built, what would be the company's new CM ratio and new break-even point in dog collars? CM Ratio Unit Sales to break even 6. Refer to the data in (5) above. a. If the new plant is built, bow many dog collars will bave to be sold next year to earn the same net operating income, $126,000, as last year? b-1. Assume the new plant is built and that next year the company manufactures and sells 54,000 dog collars (the same number as sold last year). Prepare a contribution format income statement
