Question

be Maps News Translate M Gmail apter 06 Pre-Built Problems Saved Help Save & Exit Submit Check my work Northwood Company manufactures basketballs. The company has a ball that sells for $31. At present, the ball is manufactured in a small plant celles leavily or direct labor workers. Thus, variable expenses are high, totaling $21.00 per ball, of which 68% is direct labor cost Last year, the company sold 30,000 of these balls, with the following results: kipped $ eBook Sales (30,eee balls) Variable expenses Contribution margin Fixed expenses Net operating income 930,000 630,00 3ee,eee 21e,eee 9e, eee Print erences Required: 1. Compute (a) last year's CM ratio and the break-even point 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 variable expenses will increase by $3.00 per ball. If this change takes place and the selling price per ball remains constant at $3100, what will be next year's CM ratio and the break- even point in balls? 3. 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-

Answer 1

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Northwood Company
Answer 1
Contribution margin income statement
Particulars	Amount $	Per Unit $	Note
Units	30,000.00		E
Sales	930,000.00	31.00	A
Variable Expenses	630,000.00	21.00	B
Contribution margin	300,000.00	10.00	C=A-B
Contribution margin %	32.26%		D=C/A
Fixed Expenses	210,000.00		F
Breakeven point	21,000.00		G=F/C
Operating Income	90,000.00		H
Operating leverage	3.33		I=C/H
Answer 2
Particulars	Amount $
Sales	31.00		See A
Variable Expenses	24.00		J
Contribution margin	7.00		K=A-J
Contribution margin %	22.58%		L=K/A
Fixed Expenses	210,000.00		See F
Breakeven point	30,000.00		M=F/K
Answer 3
Fixed Expenses	210,000.00		See F
Operating Income	90,000.00		See H
Target Contribution	300,000.00		N=F+H
Contribution margin	7.00		See K
Units to be sold	42,857.14		O=N/K
Answer 4
Contribution margin % of last year	32.26%		See D
Variable Expenses % of last year	67.74%		P= 1-D
Variable Expenses of current year	24.00		See J
Sell Price should be	35.43		Q= J/P
Answer 5
Variable Expenses of last year	21.00		See B
Decrease by 32.26%	6.77		R= B*32.26%
Revised Variable Expenses	14.23		S=B-R
Fixed Expenses of last year	210,000.00		See F
Fixed Expenses of current year	420,000.00		T= F*2
Particulars	Amount $
Sales	31.00		See A
Variable Expenses	14.23		See S
Contribution margin	16.77		U=A-S
Contribution margin %	54.11%		V=U/A
Fixed Expenses	420,000.00		See T
Breakeven point	25,037.85		W=T/U
Answer 6
Fixed Expenses	420,000.00		See T
Operating Income	90,000.00		See H
Target Contribution	510,000.00		X= T+H
Contribution margin	16.77		See U
Units to be sold	30,403.11		Y=X/U
Answer 7
Contribution margin income statement
Particulars	Per Unit	Total
Units	30,000.00
Sell Price	31.00	930,000.00
Less- Variable costs	14.23	426,762.00
Contribution margin	16.77	503,238.00	Z
Less: Total Fixed costs		420,000.00	See T
Operating income		83,238.00	AA= Z-T
Degree of Operating leverage		6.05	AB= Z/AA