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 50,000 of these balls, with the following results: Sales (5e,80e balls) Variable expenses Contribution margin Fixed expenses Net operating income $ 1,25e,800 758,808 58e,8e8 328,8e0 $ 180,800 Required 1. Compute (a) last year's CM ratio and the break-even polnt 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 varlable expenses will Increase by $3.00 per ball. If thls change takes place and the sellilng price per ball remalns constant at $25.00, what will be next year's CM ratio and the break-even polnt 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 year to earn the same net operating Income, $180,000, as last year? 4. Refer agaln to the data In (2) above. The presldent feels that the company must ralse the selling price of Its basketballs. If Northwood Company wants to malntaln the same CM ratlo as last year (as computed In requirement 1a), what selling price per ball must it charge next year to cover the Increased labor costs? 5. Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40.00%, but t would cause fixed expenses per year to double. If the new plant Is built, what would be the company's new CM ratio and new break-even polnt In balls? 6. Refer to the data In (5) above a. If the new plant Is built, how many balls will have to be sold next year to earn the same net operating Income, $180,000, as last year? b. Assume the new plant is bullt and that next year the company manufactures and sells 50,000 balls (the same number as sold last year). Prepare a contribution format Income statement and Compute the degree of operating leverage