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Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relles 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 33,000 of these balls, with the following results: 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 canstant at $25.00, what will be next year's CM ratio and the break-even point in balls? 3. Refer to the data in requirement 2 . 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. $103,200, as tast year? 4. Refer again to the data in requirement 2 . The president feels that the company must raise the selling price of its basketbalis. If Northwood Company wants to mointain the same CM ratio as last year (os computed in requirement la), 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 manufocturing plant. The new plant would slash variable expenses per ball by 40.00%, but it 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 point in balls? 6. Refer to the data in requirement 5 . a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $103,200, as last year? b. Assume the new plant is built and that next year the company manufactures and sells 33,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage

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