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Problem 6-20 (Algo) CVP Applications: Break-Even Analysis; Cost Structure; Target Sales [LO6-1, LO6-3, LO6.4, LO6.5, LO6-6, LO6-8] Northwood Compary manufactures basketballs. The company has a

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Problem 6-20 (Algo) CVP Applications: Break-Even Analysis; Cost Structure; Target Sales [LO6-1, LO6-3, LO6.4, LO6.5, LO6-6, LO6-8] Northwood Compary manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a smail plant that relies heavily on direct labor warkers. Thus, variable expenses are high, totaling $15,00 per bail, of which 60% is direct labot cost. Last year, the company sold 34,250 of these balls, with the following results: Reguired: 1. Compute (n) 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 $300 per bait, If this change takes place and the selling price per bali remains constant at $2500, what will be next year's CM ratio and the break-even point in balis? 3. Refer to the data in requirement 2. If the expected change in variable expenses takes place, how many balis will have to be sold next year to eam the same net operating income, $108,700, as last year? 4. Refer again to the data in requitement 2. The president feets that the company must raise the seling peice of its basketbalis. If Northwood Company wants to maintain the same CM ratio as last year (as computed in requitement fa), what setling price per ball must it charge next year to cower the increased iabor costs? 5. Refer to the original data. The company is discussing the construction of a now, automated manufocturing plant. The new plant would slash variable expenses per ball by 40005 , but it would cause foed expenses per year to double. If the new plant is bult, what would be the compary's new CM ratio and new break-even point in balls? 6. Refer to the data in requirement 5. a. If the new plant is built, how mary balls will have to be sold next year to eam the same net operating income, 5108,700 , as last year? b. Assume the new plant is buit and that next year the company manufactures and seils 34.250 balls the same number as sold last yean. Prepare a contribution format income statement and compute the degree of operating leverage

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