Question

Help 10 Problem 6-20 CVP Applications: Break-Even Analysis; Cost Structure; Target Sales (LO6-1, LO6-3, LO6 4. L06-5, L06-6, LO6-8) 0.83 points 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 40.000 balls) $ 1.100.000 Contribution margin Fixed expenses het operating income 312.000 $ 133,000 fences Required: 1. Computea last year's CM ratio and the break-even point in balls, and 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 variable expenses will increase by $3.00 per bait. 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 point in bals? 3. Refer to the data in (2) above the expected change in variable expenses takes place, how many balls will have to be sold next 4. Refer again to the data in 2) above. The president feels that the company must raise the selling price of its basketbals. Northwood Company wants to maintain the same CM ratio as last year is computed in requirement to what selling price per bal would slash variable expenses per ball by 40.00%, but it would cause food expenses per year to double the new plant is built what original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would be the company's new CM ratio and new break-even point in balls? all the new plant is built, how many balls will have to be sold next year to eam the same net operating income $123.000, as last year? b. Assume the new plant is built and that next year the company manufactures and sets 44,000 balls the same number as sold fast year). Prepare a contribution format income statement and compute the degree of operating leverage < Prev 10 of 12 Next > 2 3 6 7 8 W E R T Y U 1 0 S D F G H J K L N C V B V V N M 26 * command command

Answer 1

Answer do Question - Sales- variable cost a) cm Xloo (m Ratio Sales 660000 1100 000 Yloo 1100 000 401 Fineel cost Break-even point in Ball Contribution margin per Ball Fixed cost 317000 contribution margin per Ball- selling price per Ball - Variable rost per Ball 25-15 10 317000 Break-even point in balls 31700 Balls 10 b) digree of operating leverage : Quan hagu selling price - Van taste cost per parant unit Quanting (por selling price varmasle pornuit cost per Foxel unit Cost 44000 (25-15) 44 000 (25-15) - 37000 44000u 123000 3.58

Answer to Question - 2 New vartable cost per Ball 15+3 - 18 Selling Price per Ball = 25 Selling Price - variable cost ZOO : consibuh Cm Ratio selling price 25-18 25 X100 = 28%. Break-even point to Ball Fixed cost Contribution per Ball 317000 (25-18) 45285.7 - 45286 Balls Answer to Question-3 No. of Balls to be sold to get Net Fixed cost + Requered proht operching income A ? 123000 Contribution per Ball 317000 + 123000 (25-18) 628857 62857-16 62858 Balls

Answer to Quesson - 4 Selling Price - Variable cost cm Ratio - X100 sales selling price cm in Aspen Arteshon Cm Ratio in last year 40%. - 18 [ 15 +3 New variable lost Selling Price – 18 404 Xloo selling price 0.40 selling price - 18 selling price 0.40 selling price selling price-18 18 0.60 selling price 18 :-selling price 30 0.60 selling price per Ball to mountain some cm ratio $30

Questions New variable cost - 15- (15x407) 89 per Ball New Fored cost 317000 X2 s 634000 selling price $25 per Ball cm Ratio 25- 9 25 - 647. Break-even point in Balls = foceed cost controbuton percent 634000 (25-9) 39625 Balls Queshon - 6 a) How many Ball to earn profit of 123000 - Fixed cost + 123000 Cold abutin e Ball 634000 + 123000 25-9 47312.5 47313 Balls

Sales (44000 x 25) 100 000 $ Variable expense (44000 x 9) § 39 6ooo Contribution margin § 70 4000 & 634000 Foceel expense $ 10000 Net operating income contribuhun margin degree of operating (everage Net operating income T04000 70 000 10.06