Historial Marcadores Ventana Ayuda Help Save & Exit Northwood Company manufactur

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Historial Marcadores Ventana Ayuda Help Save & Exit Northwood Company manufactures basketballs. The company has a ball that sells for $26. At present, the ball is manufactured in small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $1 labor cost 6.00 per ball, of which 62% is direct Last year, the company sold 30,000 of these balls, with the following results: 5 180,000 Sales (30,000 balls) Variable expenses Contribution argin Tixed expenses Set operating incone 480,00 90,000 1 Compute (a) last year's CM ratio and the break-even point in balls, and Ib) 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 $3.00 per bai If this change takes place and the seling price per ball remains constant at $26.00, what will be next years CM ratio and the break-even point in bels? 3. Refer to the data in (2) above. H the expected change in variable expenses takes piace, how many bails will have to be sold next year to earn the same net operating income, $90,000, as last year? 4. Refer again to the data in (2) above. The president feels that the company must rqise the selling price of its basketballs. 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? 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 38.46% but it would cause fixed expenses per year to double. 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 in5) 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, $90.000, as last year? b. Assume the new plant is built and that next year the company manufactures and sells 30,000 balls the same number as sold last year) Prepare a contribution format income statement and Compute the degree of operating leverage Prev 60, 9111 Next> MacBook Air BBBBABB 5

Explanation / Answer

As per policy, only four parts of a question are allowed to answer, so answering 1 - 4,

1) a) CM ratio Contribution / Sales 300000/780000 =38.46% Contribution per ball 300000/30000 =$10 per ball BEP, balls Fixed Cost / contribution per ball 210000 / 10 =21000 balls b) Degree of operating leverage contribution/Operating income 300000/90000 =3.33 2) CM ratio Contribution / Sales (26-19)/26 26.92% Contribution per ball 26-19 =$7 BEP, balls Fixed Cost / contribution per ball 210000 / 7 30000 balls 3) Total contribution required = Fixed cost + expected NOI = 210000 + 90000 = 300000 Balls to be sold next year = 300000 / 7 = 42857.14 balls 4) to find out the revised SP, we have to maintain the CM ratio So, CM ratio = 38.45% = (x - 19) / x => x *38.45% = x - 19 Selling price = x =19 /0.6155 = $30.87 per ball

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