will result enses remain s convinced hly sales of crating con ath total and 4 What would be the break-even point in unit sales and in dollar sales using the sing determined in (3) above (eg, the selling price at the level of maximum profits )? Why is this break-even point different from the break-even point you computed in (2) above PROBLEM 2-20 CVP Applications: Break Even Analysis: Cost Structure Torpet Sales L02-1, 102, LOLO2-5, L02-5, LO2- 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 S15 per ball of which 60% is direct labor cost Last year, the company told 30,000 of these balls, with the following results: elling price Sales (30,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income $750,000 450,000 300,000 210.000 $ 90,000 02-3, a month Required: 1. Compute(a) the 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 variable expenses will increase by 53 per ball next year. If this change takes place and the selling price per ball remains con- stant at $25, what will be the new CM ratio and break-even point in balls! 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, 590,000, as last year? 4. Refer again to the data in (2) above. The president feels that the company must raise the sell. ing price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year, 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 -even Chapter 2 6. 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? Refer to the data in (5) above. 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. If you were a member of top management, would you have been in favor of constructing the new plant? Explain. C. PROBLEM 2-21 Sales Mix: Multiproduct Break-Even Analysis LO2-9 Gold Star Rice, Lid., of Thailand exports Thai rice throughout Asia. The company grows three varieties of rice-White, Fragrant, and Loonzain. Budgeted sales by product and in coming month are shown hal