connect.html https/ 44 Week 4 Problems Northwood Company manufactures basketball

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connect.html https/ 44 Week 4 Problems Northwood Company manufactures basketballs. The company has a company has a ball thoat sells for $36. At present, the ball is manufectured in high, totaling $2600 per bell, of which 72x% s direct small plant thet relies heavily on direct labor workers. Thus, variable expenses are labor cost Last year, the company sold 30,000 of these balls, with the following results Sales (38,830 balls) 1,800, Variable expenses Fixed expenses Net operatine income s 90,880 1 Compute (a) last years CM ratio and the break even point in balls, and (b) the degree of operating leverage at last yeers sales leve 2. Due to an increase in labor retes, the company estimates thet next year's Required: variable expenses will increase by $3.00 per ball If this what wil be next year's CM retio and the break-even change takes place and the selling price per bell remains constant at point in balls? 3. Refer to the data in (2) above. If the expected change in variable year to earn the same net operating income 4 Refer again to the data in (2) above. The president feels that the company Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement 1a), what selling price per ball expenses takes place, how many balls will have to be sold next $90,000, as last year? must raise the selling price of its basketballs. If 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 would slash variable expenses per ball by 2778%, but it would cause fixed expenses per year to would be the company's new CM ratio and new bresk-even point in double. it the new plant is buit, what 6 Refer to the dete in (5) above a. If the new plant is built, how many b. Assume the new plant is built and that next year the company manufectures and sells 30,000 balls (the same number as to be sold next year to earn the same net operating income. $90,000, as last year? sold last year) Prepare a contribution format income statement and Compute the degree of opereting leverage Prex 1621 Next > search TOSHIBA

Explanation / Answer

A Sales $1,000,000 B Variable expense $700,000 C Contribution margin $300,000 D Fixed expenses $210,000 E Net operating income $90,000 1 C/A Last years CM ratio(Contribution Margin Ratio) 0.30 F=C/30000 Contribution per unit $10 D/F Break even point in balls 21000 C/E Degree of operating leverage 3.33 2 G=B/30000 Last years variable expense per unit $23.33 H Next years variable expense per unit $26.33 (23.33+3) I Next years Sales per unit $36 Next years: J=I*30000 Sales $1,080,000 K=H*30000 Variable expense $789,900 L=J-K Contribution margin $290,100 M Fixed expenses $210,000 N=L-M Net operating income $80,100 P=L/J next years CM Ratio 0.27 Q=L/30000 Unit contribution margin 9.67 R=M/Q Next years Break even point             21,717 3 S=R+90000/Q Number of balls need to be sold 31024 4 Selling Price required for contribution ratio of 0.3 C/A Contribution ratio(under (1)) 0.3 H Variable cost per unit under (2) 26.33 Selling Price Required=X (X-26.33)/X=0.3 X-26.33=0.3X X*(1-0.3)=26.33 X=26.33/0.7= 37.61428571 Selling Price required for contribution ratio of 0.3 $           37.61

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