Tast year Refer again to the data in (2) above. The president feels that the company must raise the sell- ing price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement la), what selling price per ball must it charge next year to cover the increased labor costs? 4. 5. Refer to the original data. The company is discussing the construction of a new, automated but it manufacturing nt Th
Tast year Refer again to the data in (2) above. The president feels that the company must raise the sell- ing price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement la), what selling price per ball must it charge next year to cover the increased labor costs? 4. 5. Refer to the original data. The company is discussing the construction of a new, automated but it manufacturing nt Th
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter7: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 62P
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Question
Please help with bullet number 4
![LO5-4, LO5
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:
$750,000
Sales (30,000 balls)
Variable expenses..
450,000
Contribution margin
300,000
Fixed expenses.
210,000
Net operating income.
$ 90,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd8f0b0f2-ea3a-4ad5-a43a-b584eea1f738%2Fec4709bc-422b-4a41-b438-7b11ab13c4b3%2F1a7wnaq_processed.jpeg&w=3840&q=75)
Transcribed Image Text:LO5-4, LO5
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:
$750,000
Sales (30,000 balls)
Variable expenses..
450,000
Contribution margin
300,000
Fixed expenses.
210,000
Net operating income.
$ 90,000
![210,000
Fixed expenses .
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
ating leverage at last year's sales level.
Due to an increase in labor rates, the company estimates that next year's varíable 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?
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?
Refer again to the data in (2) above. The president feels that the company must raise the sell-
ing price of its basketballs. If Northwood Company wants to maintain the same CM ratio as
last year (as computed in requirement la), what selling price per ball must it charge next year
to cover the increased labor costs?
oper-
2.
3.
4.
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%, 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?
6.
5.
Refer to the data in (5) above.
If the new plant is built, how many balls will have to be sold next year to earn the same
net operating income, $90,000, as last year?
b.
a.
Assume the new plant is built and that next year the company manufactures and sells
30,000 balls (the same number as sold last year). Prepare a contribution format income
statement and compute the degree of operating leverage.
If YoU were a memher of ton](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd8f0b0f2-ea3a-4ad5-a43a-b584eea1f738%2Fec4709bc-422b-4a41-b438-7b11ab13c4b3%2Fd072uwq_processed.jpeg&w=3840&q=75)
Transcribed Image Text:210,000
Fixed expenses .
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
ating leverage at last year's sales level.
Due to an increase in labor rates, the company estimates that next year's varíable 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?
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?
Refer again to the data in (2) above. The president feels that the company must raise the sell-
ing price of its basketballs. If Northwood Company wants to maintain the same CM ratio as
last year (as computed in requirement la), what selling price per ball must it charge next year
to cover the increased labor costs?
oper-
2.
3.
4.
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%, 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?
6.
5.
Refer to the data in (5) above.
If the new plant is built, how many balls will have to be sold next year to earn the same
net operating income, $90,000, as last year?
b.
a.
Assume the new plant is built and that next year the company manufactures and sells
30,000 balls (the same number as sold last year). Prepare a contribution format income
statement and compute the degree of operating leverage.
If YoU were a memher of ton
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