Northwood Company manufactures basketballs. The company has a ball that sells for $35. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $21.00 per ball, of which 60% is direct labor cost.
Last year, the company sold 41,000 of these balls, with the following results:
Sales (41,000 balls)

$

1,435,000

Variable expenses

861,000





Contribution margin

574,000


Fixed expenses

420,000





Net operating income

$

154,000

Required:
1a. Compute the CM ratio and the breakeven point in balls.(Do not round intermediate calculations. Round up your final break even answers to the nearest whole number.)
1b. Compute the the degree of operating leverage at last years sales level.(Round your answer to 2 decimal places.)
2. Due to an increase in labor rates, the company estimates that variable expenses will increase by $2.80 per ball next year. If this and the selling price per at $35.00, what will be the new CM ratio and breakeven point in balls?(Do not round intermediate calculations. Round up your final break even answers to the nearest whole number.)
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?(Do not round intermediate calculations.Round your answer to the nearest whole unit.)
4.Refer again to the data in (2) above. The president feels that the company must raise the selling price of its basketballs. If 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?(Do not round intermediate calculations. Round your answer to 2 decimal places.)
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 30%, but it would cause fixed expenses per year to increase by 76%. If the new plant is built, what would be the companys new CM ratio and new breakeven point in balls?(Do not round intermediate calculations. Round up your final break even answers to the nearest whole number.)
6. 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, $154,000, as last year?(Do not round intermediate calculations.)
b1. Assume the new plant is built and that next year the company manufactures and sells 41,000 balls (the same number as sold last year). Prepare a contribution format income statement.(Do not round your intermediate calculations.)
b2. Compute the degree of operating leverage.(Do not round intermediate calculations and round your final answer to 2 decimal places.)