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home / study / questions and answers / business / accounting / northwood company manufactures basketballs. the ... Your question has been answered! Rate it below. Let us know if you got a helpful answer. Question 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 54,000 of these balls, with the following results: Sales (54,000 balls) $ 1,890,000 Variable expenses 1,134,000 Contribution margin 756,000 Fixed expenses 630,000 Net operating income $ 126,000 Required: 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 increase by 89%. If the new plant is built, what would be the company’s new CM ratio and new break-even point in balls? (Do not round intermediate calculations.) 6. Refer to the data in (5) above. a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $126,000, as last year? (Do not round intermediate calculations.) b-1. Assume the new plant is built and that next year the company manufactures and sells 54,000 balls (the same number as sold last year). Prepare a contribution format income statement (Do not round your intermediate calculations.) b-2. Compute the degree of operating leverage. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Explanation / Answer
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 increase by 89%. 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. a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $126,000, as last year?
b-1. Assume the new plant is built and that next year the company manufactures and sells 54,000 balls (the same number as sold last year). Prepare a contribution format income statement (Do not round your intermediate calculations.) b-2. Compute the degree of operating leverage. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
The new CM ratio will be Selling price 35 Variable expenses. 21(1-40%) 12.6 Contribution margin 22.4 The new CM ratio will be 22.4/35 64% Fixed Expense 630000 1190700 Break even =Fixed Asset/Contribution 53156Related Questions
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