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 $42. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $25.20 per ball, of which 60% is direct labor cost. Last year, the company sold 44,000 of these balls, with the following results: Variable expenses 1,108,800 margin Required: 1-a. Compute last year's CM ratio and the break-even point in balls. (Do not round intermediate calculations.) 1-b. Compute the the degree of operating leverage at last year's sales level. (Round your answer to 2 decimal places.)

Explanation / Answer

Required Formulas

739,200 268,800

= 2.75

CM ratio = Contribution margin/Sales *100 Break even in unit sales = Fixed expenses/ contribution per unit Degree of Operating leverage = Contribution margin/ Net operating Income

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