Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

SADA Company manufactures Volleyballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies

SADA Company manufactures Volleyballs. 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, totalling $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 Required: 10 Points

1. Compute the following:- 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 (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, $90,000, 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 Volleyballs. If SADA 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%, 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 breakeven point in balls?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting

Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett

9th edition

1118608224, 1118608227, 730323994, 9780730323990, 730319172, 9780730319177, 978-1118608227

More Books

Students also viewed these Accounting questions

Question

2. Explain who uses single-subject research and why.

Answered: 1 week ago

Question

1. Avoid reading cumulative folders early in the year.

Answered: 1 week ago

Question

Personal role: This consists of service to family and friends.

Answered: 1 week ago