Problem 5-20 CVP Applications: Break-Even Analysis; Cost Structure; Target Sales 4, LO5-5, LO5-6, LO5-8] LO5-1, Lo5-3, Lo5- d in a 71% is direct Northwood Company manufactures basketballs. The company has a ball that sells for $34. At present, the ball is manufacture small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $24.00 per ball, of which labor cost Last year, the company sold 30,000 of these balls, with the following results Sales (3e,800 balls) Variable expenses Contribution margin Fixed expenses Net operating income $ 1,820,080 728,800 300,000 210,000 $ 93,900 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 $34.00, 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, $90,000, 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 29 41%, but it would cause fixed expenses per year to double. If the neplans 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. Iif 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? Mc Graw