estions: Break-Even Point; Cost Structure; Target Sales [L01, LO3, Poin PROBLEM 4-20 Various CVP 05.t0c mpany manufactures basketball. The company has a ball that sells for $25, A s manufactured in a small plant that relies heavily on direct labor workers. Thus present, the ball i variable expenses are high, totaling $15 per ball, of which 60% is direct labor cost the company sold 30,000 of these balls, with the following results: Sales (30,000 balls) Variable expenses 450,000 300,000 210,000 $90,000 Fixed expenses Net operating income . .. Required 1. Compute (a) the CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year's sales level Due to an increase in labor rates, the company estimates that variable expenses will increase by $3 per ball next year. If this change takes place and the selling price per ball remains con stant at $25, what will be the new CM ratio and break-even point in balls? 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 year to earn the same net operating income, $90,000, as 3. last year? Refer again to the data in (2) above. The president feels that the company must raise th selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year, what costs? Refer to the origi 4. selling price per ball must it charge next year to cover the increased labor 5. nal data. The company is discussing the construction of a new, automated 40%, but it penses per year to double. If the new plant is built, what would be the e sold next year to earn the same s buill and that next year the company manufactures and sells manufacturing plant. The new plant would slash variable expenses per ball by ompany's new CM ratio and new break-even point in balls? Refer to the data in (5) above 6. a. If the new plant is built, how many balls will have to b operating income, $90,000, as last year? Assume the new e number as sold last year). Prepare a contribution format income r of top management, would you have been in favor of constructing 30,000 balls (the same and compute the degree of operating leverage i you were a mem the new plant? Explain