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 $32. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $22.40 per ball, of which 70% is direct labor cost. Last year, the company sold 45,000 of these balls, with the following results:

Required 1-a. Compute last year's CM ratio and the break-even point in balls. (Do not round intermediate calculations. Round up your final break even answers to the nearest whole number.) CM Ratio 301 % Unit sales to break even 30,000 balls 1-b. Compute the the degree of operating leverage at last year's sales level. (Round your answer to 2 decimal places.) Degree of operating leverage 3.00 2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $1.60 per ball. If this change takes place and the selling price per ball remains constant at $32.00, what will be next year's CM ratio and the break-even point in balls? (Do not round intermediate calculations. Round up your final break even answers to the nearest whole number.) CM Ratio 25 % Unit sales to break even 36,000 balls

Explanation / Answer

5

b1

b2

Operating leverage = Contribution Margin/Net operating income

=633600/115200 =5.5

CM Ratio =Contribution/Sales Contribution =32-22.40*(1-.20) 14.08 Sales 32 CM Ratio =14.08/32 44.00% Units Sales to Break Even =Fixed Cost /Contribution Fixed Cost 288000*(1+.80) 518400 Units Sales to Break Even =518400/14.08 36,818 No of balls to sold to earn profit of 144000 =(518400+144000)/14.08 47,045

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

---

---

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