NEED ANSWERS FOR 4 THRU 6B2 Northwood Company manufactures basketballs. The comp
ID: 2417997 • Letter: N
Question
NEED ANSWERS FOR 4 THRU 6B2
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 $24.5 per ball, of which 70% is direct labor cost.
Compute the CM ratio and the break-even point in balls.
ANSWER is 30%
ANSWER IS 40,000 BALLS
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 $3 per ball next year. If this change takes place and the selling price per ball remains constant at $25, what will be the new CM ratio and break-even point in balls?
ANSWER is 25%
ANSWER IS 48,000 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, $144,000, as last year? (Do not round intermediate calculations. Round your answer to the nearest whole unit.)
ANSWER IS 57,600 BALLS
NEED ANSWERS FOR 4- 6B2
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, 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.)
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 20%, but it would cause fixed expenses per year to increase by 80%. If the new plant is built, what would be the companys new CM ratio and new break-even point in balls? (Do not round intermediate calculations.)
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, $144,000, as last year?(Do not round intermediate calculations.)
Assume the new plant is built and that next year the company manufactures and sells 45,000 balls (the same number as sold last year). Prepare a contribution format income statement (Do not round your intermediate calculations.)
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 $24.5 per ball, of which 70% is direct labor cost.
Explanation / Answer
1-a CM ratio= Contribution margin /Sales 0.3 !-b Operating Levelarge=Contribution Margin/Net Income 6 504000/84000 Ans 4 Selling Price should also be increased by $3 to maintain the CM ratio at 30% So Selling price will be $28 Sales=Variable Expense+contribution margin But if we see original figure the sales is $1680000 and if we divide it by 48000 Balls we have sale price as $35 not $25 but in question it is $25 so I have added $3 to it, otherwise I would have added $3 to $35 to make it $38 Ans 5 Sales 1,680,000 Variable expenses decrease by 20% 940,800 Contribution margin 739,200 Contribution margin per unit 739200/48000 balls 15.40 CM ratio= Contribution/Sales 0.44 Ans Fixed expenses increased by 80% 756,000 Net operating loss 16,800 Breakeven in units= Fixed Cost/Contribution margin perr unit 49091 Ans 756000/15.4 Ans 6 No. of Balls=Fixed expense+Net operating Income/Contribution per unit 58442 Units 756000+144000/15.4 b-1 Sales for 45000 units 1,575,000 Variable expenses decrease by 20% 882,000 Contribution margin 693,000 Contribution margin per unit 739200/48000 balls 15.40 Fixed expenses increased by 80% 756,000 Net operating loss 63,000 !-b Operating Levelarge=Contribution Margin/Net Income -11 693000/(63000)
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