Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15 per ball, of which 60% is direct labor cost. Last year, the company sold 30,000 of these balls, with the following results: Sales (30,000 balls) Variable expenses Contribution margin Fixed expenses $ 750,000 450,000 300,000 210,000 Net operating income $ 90,000 Required: 1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) 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 per ball. If this change takes place and the selling price per ball remains constant at $25, what will be next year's CM ratio and the break-even point in balls? 3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $90,000, as last year?

Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15 per ball, of which 60% is direct labor cost. Last year, the company sold 30,000 of these balls, with the following results: Sales (30,000 balls) Variable expenses Contribution margin Fixed expenses $ 750,000 450,000 300,000 210,000 Net operating income $ 90,000 Required: 1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) 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 per ball. If this change takes place and the selling price per ball remains constant at $25, what will be next year's CM ratio and the break-even point in balls? 3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $90,000, as last year?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured In a small plant that relies heavily on direct labor workers. Thus, varlable expenses are high, totaling $15.000 per ball, of which 60% Is direct labor cost Last year, the company sold 62.000 of these balls, with the following results: $ 1,558, 000 930, e00 Sales (62,889 balls) Variable expenses Contribution margin Fixed expenses 620,e00 426,000 $ 194, 000 Net operating income Required: 1. Compute (a) last year's CM ratio and the break-even polnt in balls, and (b) 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 varlable expenses will increase by $3.00 per ball. If this change takes place and the selling price per ball remalns constant at $25.00, what will be next year's CM ratio and the break-even polnt in balls? 3. Refer to the data in (2) above. If the expected change in…
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Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, varlable expenses are high, totaling $15.00 per ball, of which 60% Is direct labor cost Last year, the company sold 62.000 of these balls, with the following results: Sales (62,809 balls) Variable expenses Contribution margin Fixed expenses $ 1,558, 000 930,e00 620, e00 426, e00 Net operating income $ 194,e00 Required: 1. Compute (a) last year's CM ratio and the break-even polnt In balls, and (b) 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 varlable expenses will Increase by $3.00 per ball. If this change takes place and the selling price per ball remalns constant at $25.00, what will be next year's CM ratio and the break-even polnt in balls? 3. Refer to the data in (2) above. If the expected change In…
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Northwood Company manufactures a basketball selling for $25 per unit in a small plant heavily relying on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 32,000 balls, with the following results: Sales (32,000 balls) $ 800,000 Variable expenses 480,000 Contribution margin 320,000 Fixed expenses 221,200 Net operating income $ 98,800 Required: Compute (a) last year's CM ratio and the break-even point in balls and (b) the degree of operating leverage at last year’s sales level. CM Ratio = 40%; Unit sales to break even = 22,120 balls; Degree of operating leverage= 3.24 Due to an increase in labor rates, the company estimates next year's variable expenses will increase by $3 per ball. If this change takes place and the selling price per ball remains constant at $25, what will be next year's CM ratio and the break-even point in balls? CM Ratio = 28%; Unit sales to break even =…
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