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Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured i
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Answer #1

CM ratio = CM/Sales

= 420,000/1,050,000

=40%

Break point in Balls = Fixed costs/CM per unit

= 266,000/10

= 26,600 units

Degree of operating leverage = CM/Operating income

= 420,000/154,000

=2.7273

2.CM Ratio = (25-15-3)/25 = 28%

Break even point = 266,000/7 = 38,000 balls

3.Desired operating income = $154,000

Add: Fixed costs = 266,000

Desired contribution margin = $420,000

Number of balls = 420,000/7 = 60,000 balls

4.Selling price = Variable cost/Variable cost ratio

= 18/0.6 = $30

5.CM Ratio = (25-15*0.6)/25 = 64%

Break even point = 266,000*2/16

= 33,250 balls

6a. Balls to be sold = (154,000+532,000)/16

= 42,875 balls

b.Income Statement

Sales 42,000*25

1,050,000

Variable expenses 42,000*9

378,000

Contribution Margin

672,000

Fixed costs

532,000

Operating income

140,000

DOL = 672,000/140,000

= 4.8

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