Question No. 3:

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