Question

Northwood Company manufactures basketballs. The company has a ball that sells for $35. At present the ball is manufacturedna small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $2100 per ball of which 60% is direct labor cost Last year, the company sold 41,000 of these balls, with the following results: Sales (41,600 balls) Variable expenses Contribution margin Fixed expenses Net operating income $ 1,435, eee 861, eee 574, eee 420, eee $ 154, eee Required: 1. 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 2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $2.00 per ball. If this change takes place and the selling price per ball remains constant at $35.00, 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, $154,000, 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 basketballs. If Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement ta), what selling price per bal must it charge next year to cover the increased labor costs? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 < Prey 2 of 7 !! Next >

Answer 1

Conribution masgih xl Couribution Margin ratio Sales $5y000 aadEn fxed enpenrer Sale prica- vaiabla cer Beak even pnint unit fer uRa,000 $35-99) 3o000 unks Contributen mayh Degres o operatigege opratig home 574poo IS400D 2.72

Fevlked Centributin ain41000 bal l fus1,200 cantribution masydh Xlo ub000 eak euen point (35-238 594,o0D Tauget Cenhibustien Nangh 1per unit 35-23-8 Centributin Mg per unit S74,000 eoun 1540e0 Units to be &eld to 51,250 UNs yo Desired laber CM datb Cest Desned Sellig pica (l00-4011) 3१.67