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 (62,000 balls) Variable expenses Contribution margin Fixed expenses $ 1,550, e00 930, e00 620, e00 426,000 $ 194, e00 Net operating income Requlred: 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 remains 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 varlable expenses takes place, how many balls will have to be sold next year to eam the same net operating Income, $194,000, as last year? 4. Refer agaln to the data in (2) above. The president feels that the company must raise the selling price of Its basketballs. If Northwood Company wants to malntaln the same CM ratio as last year (as computed in requirement 1a), what selling price per ball must it charge next year to cover the Increased labor costs? 5. Refer to the origlinal data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash varlable expenses per ball by 40.00%, but It would cause fixed expenses per year to double. If the new plant is bult, what would be the company's new CM ratio and new break-even polnt in balls? a. If the new plant is bult, how many balls wll have to be sold next year to earn the same net operating income. $194.000, as last year? b. Assume the new plant is bullt and that next year the company manufactures and sells 62,000 balls (the same number as sold last year). Prepare a contribution format Income statement and compute the degree of operating leverage. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3 Req 4 Req 5 Req 6A Req 60 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 40.00%, 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? (Round "CM Ratio" to 2 decimal places and "Unit sales to break even" to the nearest whole unit.) Show less aA