Problem 6-20 (Static) 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 per ball, of which 60% is direct labor cost. Last year, the company sold 30,000 of these balis, with the following results: Required: 1. Compure (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 per ball. If this change takes place and the selling price per ball remains constant at $25, what will be next year's CM ratio and the break-even point in balls? 3. Refer to the data in requirement 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, $90,000, as last year? 4. Refer again to the data in requirement 2 . 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 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 be the company'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 many balls will have to be sold next year to earn the same net operating income, $90,000, as last year? b. Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage. 1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of operating leverage at iast 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 per balli. If this change takes place and the seiling price per ball remains constant at $25, what will be next year's cM ratio and the bieak-even point in balls? 3. Refer to the data in requirement 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, $90,000, as last year? 4. Refer again to the data in requirement 2. 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 ta), 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 piant would slash variable expenses per ball by 40%, 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 requirement 5. a. If 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 tast year? b. Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number as sold iast 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. 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. (Round "Degree of operating leverage" to 2 decimal places.) 6. Refer to the dato in requirement 5 . and new break-even point in bnils? a. If the new plant is bult, how many the the year? Nexi year to earn the same net operating income. 590,000, as last year). Prepare a contribution format income stater the company manufoctures and sells 30,000 bolls ithe tame number as sold inst year). Prepare a contribution format income statement and compute the degree of operating loverape Complete this question by entering your answers in the tabs below. Due to an increase in labor rates, the company estimates that next year's variable expenses wal increase by $3 per bail. If this change takes place and the selling price per bail remains corstant at $25, what will be next year's cM ratio and the break-even point in balls? must it charge next year to cover the inereasede CM fatio as last year (as computed in requirement gin price of ith basketbails if 5. Refer to the original data. The company is discussing the would slosh variable expenses per ball by 40%, but it would construction of a now, automated manufocturing plant. The new plant would be the company's new CM ratio and new break-eren point in beils? 6. Refer to the dinta in requirement 5 and new break-even point in boils? 6. Refer to the dinta in requirement 5. a. If the new plant is bulit, how many balls will have to be sold next year to eam the some net operating inemmie, 500.000, at last year? b. Assume the new plant is built and that next year the company manufoctures and sells 30,000 balis the same number as toid last year). Prepare a contribution format income statement and compute the degree of operating ieverage. Complete this question by entering your answers in the tabs below. Refor to the data in requirement 2. If the expected change in variable expenses takes piace, how mamy balls will have to be sold next year to earn the same net operating income, $90,000, as last year? (Round your answer up ta the nearest whnie unit.) would slash variable expenses per ball by 40% busting the construction of a new, nutomated manufacturing plant. The new plant would be the company's new CM ratio and new breakeven point in balls? 6. Refer to the data in requirement 5. a. If the new plant is built, how many balls will have to be sold next year to eam the same net operating income, $90.000 as tast year? b. Assume the new plant is built and that next year the company manufactures and sells 30,000 balls pthe same number as sold ins 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. Refer again to the data in requirement 2 . The president feels that the company must raise the selling price of its backetbalic If Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement ta), what selling price. per ball must it charge next year to cover the increased tabor costs? a. If the new plant is built, how many balls will have to be soid next year to eam the same net operating income, 590,000 , as last year? b. Assume the new plant is built and that next year the company manufoctures and sells 30.000 balis (the same number as sold tast year). Prepare a contribution format income statement and compute the degree of operating loverage. Complete this question by entering your answers in the tabs below. Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The her plant would slash variable expenses per bali by 40%, but it would cause fixed expenses per year to double. If the new plant is bulit, what would be the company't new CM ratio and new break-even point in bails? 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%, but it would cause fixed expenses per year to double. If the new plant is buiti, what would be the company'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 many balis will have to be sold next year to earn the same net operating incone, $90,000, at inst year? b. Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number es soid lay 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. Aefer to the data in requirement 5. If the new plant is built, how many balis will have to be sold next year to eam the rame net operating income, $90,000, as last year? mast it charge fext year 10 cower the increased labor costs? would be the compary's new CM ratio and new beeak even point in bantr? 6. Reser to the data in requirensent 5 . year? b. Assume the new plant ia built and that next year the compsny manufacturen and was 30000 belly phe tame number ms sid inn yean. Prepare a contribution formst income statement and compute the thocee of operming leyerage Cemplete this question by entering yeur answers in the tabs belsw: Refer to the data in requinement 5. Ascume the new piant is buat and that next year the company manufact ares und sent operating leverage