Answer:
Requirement 1:
Contribution margin ratio = (Contribution margin / sales ) × 100
= ($560,000 / $1,400,000) × 100
= 40%
Contribution margin ratio = 40%
Contribution margin per unit = $25 - $15 = $10 per unit
Break even sales units = Fixed cost / contribution margin per unit
= $373,000 / $10
= 37,300 units
Break even sales units = 37,300 units
Degree of operating leverage = Contribution margin / Net operating income
= $560,000 / $187,000
= 2.99
Degree of operating leverage = 2.99
Requirement 2:
New variable cost per unit = $15 + $3 = $18 per ball
New contribution margin per unit = $25 - $18 = $7 per unit
New contribution margin ratio = $7 / $25 = 28%
New breakeven point in balls = $373,000 / $7 = 53,286 units
Requirement 3:
Number of balls to be sold to earn target income:
= (Fixed cost + Target profit) / contribution margin per unit
= ($373,000 + $187,000) / $7
= 80,000 balls
Requirement 4:
Variable cost per unit = $18
Required contribution margin ratio = 40%
Required variable cost ratio = 60%
New selling price per unit = $18 / 60% = $30 per unit
Requirement 5:
New variable cost per unit = $15 × 60% = $9 per unit
New contribution margin per unit = $25 - $9 = $16
New fixed costs = $373,000 × 2 = $746,000
New contribution margin ratio = $16 / $25 = 64%
New breakeven point in balls = $746,000 / $16 = 46,625 balls
Requirement 6a:
Number of balls to be sold to earn target income:
= (Fixed cost + Target profit) / contribution margin per unit
= ($746,000 + $187,000) / $16
= 58,313 units
Requirement 6b:
Northwood Company
Contribution Margin Income Statement
Particulars | $ | |
a. | Sales (56,000 × $25) | 1,400,000 |
b. | Variable cost (56,000 × $9) | 504,000 |
c. | Contribution margin (a-b) | 896,000 |
d. | Fixed cost | 746,000 |
e. | Net operating income (c-d) | 150,000 |
f. | Degree of operating leverage (c/e) | 5.97 |
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Saved Help Northwood Company manufactures basketballs. The company has a ball that sells for $25. At...
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 $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 56,000 of these balls, with the following results: Sales (56,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income $1,400,000 840,000 560,000 373,000 $ 187,000 Required: 1. Compute...
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 $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 56,000 of these balls, with the following results: Sales (56,000 balls) $ 1,400,000 Variable expenses 840,000 Contribution margin 560,000 Fixed expenses 373,000 Net operating income $ 187,000 5. Refer...
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 $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 56,000 of these balls, with the following results: Sales (56,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income $ 1,400,000 840,000 560,000 373,000 $ 187,000 Required: 1....
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 $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 44,000 of these balls, with the following results: Sales (44,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income $ 1,100,000 660,000 440,000 317,000 $ 123,000 Required: 1....
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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, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 34,000 of these balls, with the following results: $ Sales (34.Bee balls) Variable expenses Contribution margin Fixed expenses Net operating income 350,Bee 518, eee 340, see 212.000 128, $...
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 $15.00 per ball, of which 60%
is direct labor cost. Last year, the company sold 54,000 of these
balls, with the following results:
5. Refer to the original data. The company is discussing the
construction of a new, automated manufacturing plant. The new plant...
Check my work 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 $15.00 per ball, of which 60% is direct labor cost. Last year, the company sold 60,000 of these balls, with the following results: Sales (60,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income $1,500,000 900,000 600,000 375,000 $ 225,000...