Assignment 4-4 Week 4 Problems Help Save&Exit; Submit Check my work Northwood Co
ID: 2543764 • Letter: A
Question
Assignment 4-4 Week 4 Problems Help Save&Exit; Submit Check my work Northwood Company manufactures basketballs. The company has a ball that sells for $34, At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $24.00 per ball, of which 71% is direct labor cost Last year, the company sold 30,000 of these balls, with the following results: 15 points Sales (38,886 balls) ariable expenses Contribution nargin Fixed expenses S 1,028,8e8 308,898 $ 98,986 operating incone References 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 years 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 constant at $34,00, what will be next years CM ratio and the break-even point in balls? 3. Refer to the data in (21 above, if the expected change in variable expenses akes place, hor many balls will haveto eld net year to earn the same net operating income, $90,000, as last year? 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 las computed in requirement la), what selling price per bal 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 2941%, 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 (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, $90000, as last year b. Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number as sold last year). Prepare a contribution format income statement and Compute the degree of operating leverage Complete this question by entering your answers in the tabs below. prev 10, 2iii Next>Explanation / Answer
Req 1 CM Ratio 29.41% Unit Sales to break even 21000 Degree of operating leverate 3.33 CM ratio = contribution /sales 300,000/1,020,000 29.41% BEP(units) = fixed cost/contribution margin per unit 210,000/10 21000 Degree of operating leverage = contribution/net income 300,000/90000 3.33 Req 2 CM Ratio 23.33% Unit Sales to break even 30000 CM ratio = contribution /sales 7./30 23.33% BEP(units) = fixed cost/contribution margin per unit 210,000/7 30000 Req 3 Number of balls 42857 BEP(units) =( fixed cost+ target income)/contribution margin per unit (210000+90000)/7 42857 Req 4 selling price 38.25 CM ratio = 29.41% selling price per unit be x variable cost per unit is 27 so selling price should be = 29.41% = (x-27)/x .2941x = (x -27) x =27/.7059 x = 38.25 Req 5 Selling price per unit 34 New variable cost (24*70.59%) 16.9416 Contribution per unit 17.0584 contribution margin ratio 50.17% unit sales to break-even 24621 balls (420,000/17.0584) Req 6A number of balls 29897 balls (420,000+90000)/17.0584 Req6B Contribution income statement Sales (30000*34) 1020000 Variable expenses (30,000*16.9416) 508248 Contribution margin 511752 Fixed expenses 420,000 Net operating income 91,752 Degree of operating leverage 5.58 (contribution margin/net income)