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Wilson Sporting Goods 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

Wilson Sporting Goods 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

FINANCIAL ACCOUNTING
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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Wilson Sporting Goods 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 Net operating income a. 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? Number of balls: $750,000 450,000 300,000 210,000 $90,000 b. 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). Compute the degree of operating leverage. Degree of operating leverage:
Transcribed Image Text:Wilson Sporting Goods 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 Net operating income a. 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? Number of balls: $750,000 450,000 300,000 210,000 $90,000 b. 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). Compute the degree of operating leverage. Degree of operating leverage:
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