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Problem 5-20 (Algo) CVP Applications: Break-Even Analysis; Cost Structure; Target Sales (LO5-1, L05-3, LO5-4, LO5-5, LO5-6, LO5-8) 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 56,000 of these balls, with the following results: Sales (56,000 balls) $ 1,400,000 Contribution margin 560,000 Fixed expenses Net operating income Variable expenses 840,000 373,000 $ 187,000 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 $3.00 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, $187,000, 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, $187,000, as last year? b. Assume the new plant is built and that next year the company manufactures and sells 56,000 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. Reg 5 Req 6A Reg 68 Reg 4 Reg 1 Req 2 Reg 3 fomnute ( last year's CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year's ind other answers to 2 decimal places.) next year to earn the same net ope year? b. Assume the new plant is built and that next year the company manufactures and sells 56,000 year). Prepare a contribution format income statement and compute the degree of operating leve Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Req3 Reg 4 Reg 5 Req 6A Req 6B Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of operating leve sales level. (Round "Unit sales to break even" to the nearest whole unit and other answers to 2 decima CM Ratio % balls Unit sales to break even Degree of operating leverage Rec1 Req 2 > a. It the new plant year? b. Assume the new plant is built and that next year the company manufactures and sells 56,000 ball year). Prepare a contribution format income statement and compute the degree of operating levera Complete this question by entering your answers in the tabs below. Req 6B Req 4 Req 5 Req 6A Req3 Req 1 Ra Due to an increase in labor rates, the company estimates that next year's variable expenses will increase this change takes place and the selling price per ball remains constant at $25.00, what will be next year': break-even point in balls? (Round "CM Ratio" to 2 decimal places and "Unit sales to break even" to the ne % balls CM Ratio Unit sales to break even Req3 > Prev will be next year's CM ratio and the br 3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be year to earn the same net operating income, $187,000, 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 Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement 1a), what selling prio 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. Then would slash variable expenses per ball by 40.00%, but it would cause fixed expenses per year to double. If the new plan would be the company's new CM ratio and new break-even point in balis? 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, $187. year? b. Assume the new plant is built and that next year the company manufactures and sells 56,000 balls (the same numb 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. Req 1 Req 2 Req 3 Reta 4 Req 5 Reg 6A Reg 6B Refer again to the data in (2) above. The presider. Reg 4 hat 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 la), what selling price per ball must it charge next year to cover the increased labor costs? (Round your answer to 2 decimal places.) Selling price year). Prepare a contribution format income statement and compute the degree of operating les Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Req 4 Req 5 Req 6A Req 6B Refer to the original data. The company is discussing the constructs of a new, automated manufactu plant would slash variable expenses per ball by 40.00%, but it would cause fixed expenses per year to plant is built, what would be the company's new CM ratio and new break-even point in balls? (Round places and "Unit sales to break even" to the nearest whole unit.) % CM Ratio Unit sales to break even balls Pre mpany'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 operati year? b. Assume the new plant is built and that next year the company manufactures and sells 56,000 balls year). Prepare a contribution format income statement and compute the degree of operating leverag Complete this question by entering your answers in the tabs below. Reg 1 Req 2 Req 3 Req 4 Reg 5 Req 6A Req 6B If the new plant is built, how many balls will have to be sold next year to earn the same net operating inca last year? (Round your answer to the nearest whole unit.) Number of balls Prev b. Assume the new plant is built and that next year the company manufactures and sells 56,000 balls (the 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. Req 1 Reg 2 Req 3 Req 4 Req 5 Req 6A Req 6B Assume the new plant is built and that next year the company manufactures and sells 56,000 balls (the same ne last year). Prepare a contribution format income statement and compute the degree of operating leverage. (Rou operating leverage" to 2 decimal places.) Northwood Company Contribution Income Statement Degree of operating leverage