OUT General abour cost Company manufactures basketballs. The company has a ball that sells for Kshs. At present, the ball is manufactured in a small plant that relies heavily on direct bour workers. Thus, variable costs are high, totalling Kshs. 15 per ball, of which 60% is direct Last year, the company sold 30,000 of these balls, with the following results: Kshs. 750,000 450,000 300,000 210,000 20.000 Sales (30 non balls) Variable expenses Contribution margin Fixed expenses Net operating income Required: Compute b) in balls? the CM ratio and the break-even in balls, and the degree of operating leverage at last year's sales level. (6 marks) Due to an increase in labour rates, the company estimates that variable costs will ball remains constant at Kshs. 25, what will be the new CM ratio and break-even point increase by Kshs.3 per ball next year. If this change takes place and the selling price per (4 marks) many balls will have to be sold next year to earn the same net operating income Refer the data in(1) above. If the expected change in variable costs takes place how 17 marks) Refer to the original data. Then company is discussing the construction of a new automated manufacturing plant. The new plant would slash variable costs per ball by 40, but it would cause fixed cost 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? (8 marks) Total: 25 marks) 3 (Kshs.90,000) as last year. 4