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Northwood Company manufactures basketballs. The company has a ball that sells for $36. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $25.20 per ball, of which 70% is direct labor cost.

Last year, the company sold 55,000 of these balls, with the following results:

Sales (55,000 balls)	$	1,980,000
Variable expenses		1,386,000
Contribution margin		594,000
Fixed expenses		540,000
Net operating income	$	54,000

2) Due to an increase in labor rates, the company estimates that variable expenses will increase by $2.16 per ball next year. If this change takes place and the selling price per ball remains constant at $36.00, what will be the new CM ratio and break-even point in balls? (Do not round intermediate calculations.)

CM Ratio		%
Unit sales to break even		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, $54,000, as last year? (Do not round intermediate calculations. Round your answer to the nearest whole unit.)

Number of balls

4) Refer again to the data in (2) above. The president feels that the company must raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year, what selling price per ball must it charge next year to cover the increased labor costs? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Selling price

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