Northwood Company manufactures basketballs. The company has a ball that sells fo

Question

Northwood Company manufactures basketballs. The company has a ball that sells for $34. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $20.40 per ball, of which 60% is direct labor cost. Last year, the company s old 53,000 of these balls, with the following results Sales (53,000 balls) Variable expenses $1,802,000 1,081,200 Contribution margin Fixed expenses 720,800 584,800 Net operating income $ 136,000 Required 1-a. Compute the CM ratio and the break-even point in balls. (Do not round intermediate calculations.) CM Ratio Unit sales to break even balls 1-b. Compute the the degree of operating leverage at last year's sales level. (Round your answer to 2 decimal places.) gree of operating era

Explanation / Answer

a) Contribution ratio = $720,800/ 1,802,000 = 40%

Units sales To Break even = $584,800/40% = $1,462,000

ab) Degree of operating leverage = Contribution margin/ operating income

                                                        = $584,800/136,000

                                                      = 4.3 0r430%

2) CM ration = (34 - 23.12) = 10,88/34 = 32%

Unit sales to BEP                = 584,800/32% = $1,827,500

3) Number of balls = (584,800 +136,000)/10.88

                                 = 66,250 balls

4) x - 23.12/x = 40%

x= $38.53

5)New variable expense = $20.4 @60% = $12.24

New contribution = 134 - 12.24 = $21.76

New fixed cost = $584,800 @192% = $1,122,816

CM ration        = $21.76/34 = 64%

Unit sales to BEP   = 1,122,816/64%

                                = $1,754,400

6a) (1,122,816 +136,000)/21.76 = 57,850 balls

b-1)

c) operating leveage = 1.92

a) Contribution ratio = $720,800/ 1,802,000 = 40%

Units sales To Break even = $584,800/40% = $1,462,000

ab) Degree of operating leverage = Contribution margin/ operating income

                                                        = $584,800/136,000

                                                      = 4.3 0r430%

2) CM ration = (34 - 23.12) = 10,88/34 = 32%

Unit sales to BEP                = 584,800/32% = $1,827,500

3) Number of balls = (584,800 +136,000)/10.88

                                 = 66,250 balls

4) x - 23.12/x = 40%

x= $38.53

5)New variable expense = $20.4 @60% = $12.24

New contribution = 134 - 12.24 = $21.76

New fixed cost = $584,800 @192% = $1,122,816

CM ration        = $21.76/34 = 64%

Unit sales to BEP   = 1,122,816/64%

                                = $1,754,400

6a) (1,122,816 +136,000)/21.76 = 57,850 balls

b-1)

Sales 53,000*34 $1,802,000 less:Variable expense (53,000 *12.24)     648,820 Contribution $1,153,280 less:fixed expense 1,754,400 Net loss (601,120)

c) operating leveage = 1.92

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.