Problem : Cost Volume Profit Analysis

Sports Company manufactures basketballs. The company has a standard ball that sells for $25. The variable cost are $ 15 per ball. Last year the company sold 30,000 balls. The fixed expenses are $ 210,000.

Required.

1. Prepare a Contribution Income Statement
2. Compute the Contribution Margin per Unit, Variable Expense Ratio and Contribution Margin Ratio
3. Compute the Break Even Point in dollars and units
4. Compute the Margin of Safety
5. Due to a increase in labor rates, the company estimates that variable costs will increase by $3 per ball next year. If this change takes place and the selling price per ball remains constant at $25, what will be the new Contribution margin ratio and Break Even Point in balls.
6. Refer to data in (4) above. If the expected change in variable expense takes place, how many balls will have to be sold next year to earn the net income of $100,000 .

7. Refer to the original data. The company is discussing the construction of a new automated plant to manufacture the balls.. The new plant would slash variable expenses per ball by 40%, but it would cause fixed expenses to double in amount per year. If the new plant is built, what would be the company's new Contribution Margin Ratio and new Break-Even Point.