Northwood Company manufactures basketballs. The company has a ball that sells for $36. At present, the ball is manufactured in asmall plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $21.60 per ball, of which 60% is directlabor cost.Last year, the company sold 59,000 of these balls, with the following results:Sales (59,000 balls)Variable expensesContribution marginFixed expensesNet operating income$2,124,0001,274,400CM RatioUnit sales to break even849,600705,600$ 144,000Required:1-a. Compute last year's CM ratio and the break-even point in balls. (Do not round intermediate calculations.)%balls41-b. Compute the the degree of operating leverage at last year's sales level. (Round your answer to 2 decimal places.)Degree of operatingleverage

Break even point :— It is the point of production where total cost is equal to total revenue. At…

Answered: Northwood Company manufactures…

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 $15.00 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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