PROBLEM 520 CVP Applications: Break-Even Analysis; Cost Structure; Target Sales LO51, LO53, LO54, LO55, LO56, LO58 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 per ball, of which 60% is direct labor cost. Last year, the company sold 30,000 of these balls, with the following results:

Sales (30,000 balls) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $750,000 Variable expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000 Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210,000 Net operating income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 90,000