Problem 6-20 CVP Applications: Break-Even Analysis; Cost Structure; Target Sales [LO6-1, LO6-3, LO6- 4, LO6-5, LO6-6, LO6-8] 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 36,000 of these balls, with the following results: $ Sales (36,800 balls) Variable expenses Contribution margin Fixed expenses Net operating income 900,000 540,000 360.ee 263.ee 97,000 $ 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. $97.000. 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 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. $97.000. as last year? b. Assume the new plant is built and that next year the company manufactures and sells 36.000 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. Red Reg 2 Req Rug Rogs ROGA Rua 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 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 sale 2 Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per ball. 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- 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 year to eam the same net operating Income. $97.000, 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 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 p would slash variable expenses per ball by 40.00%, but it would cause fixed expenses per year to double. If the new plant is bu would be the company's new CM ratlo and new break-even point in balls? 6. Refer to the data in (5) above. a. If the new plant is bullt, how many balls will have to be sold next year to earn the same net operating Income. $97.000. as la b. Assume the new plant is built and that next year the company manufactures and sells 36,000 balls (the same number as sa 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 1 Reg 2 Req3 Req 4 Reg 5 Re4 6A Reg 6B Compute () 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. (Round "Unit sales to break even to the nearest whole unit and other answers to 2 decimal places.) CM Ratio 90 bals Unit sales to break even Degree of operating leverage Req2 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. $97,000, 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 seling 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 rato and new break-even point in balls? 6. Refer to the data in (5) above. a. If the new plant is bullt, how many balls will have to be sold next year to earn the same net operating Income. $97.000. as last year? b. Assume the new plant is built and that next year the company manufactures and sells 36.000 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. Req 1 Reg 2 Reg 3 Reg 4 Reg 5 Reg 6 Req 68 Due to an increase in labor rates, the company estimates that next year's vanable 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 balis? (Round "CM Ratio" to 2 decimal places and "unit sales to break even to the nearest whole unit.) OM Ratio % Jnit sales to break even balls Net operating income 97,490 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. $97.000, 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. $97.000, as last year? b. Assume the new plant is built and that next year the company manufactures and sells 36,000 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. to Req1 Reg 2 Reg 3 Rega Reg 5 Red 6 Req 6D Refer to the data in Required (2). 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. $97.000. as last year? (Round your answer to the nearest whole unit.) Number of balls 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' 2 Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per change takes place and the selling price per ball remains constant at $25.00, what will be next year's CM ratio and the br 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 year to earn the same net operating Income. $97,000, 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 seling price 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 ne would slash variable expenses per ball by 40.00%. but it would cause fixed expenses per year to double. If the new plant would be the company's new CM ratlo 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. $97.000. b. Assume the new plant is built and that next year the company manufactures and sells 36,000 balls (the same number a 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 1 Reg 2 Rey 3 Req4 Reus Req 6A Rey 63 Refer again to the data in Required (2). The preslagnt 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 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