Please answerall questions (1-5) and show work for better understanding...Thankyou!
Northwood Companymanufactures basketballs. The company has a standard ball thatsells for $25. At present, the standard ball is manufactured in asmall plant that relies heavily on direct labor workers. Thus,variable costs are high, totaling $15 per ball.
Last year, the companysold 30,000 standard balls, with the following results:
Sales (30,000standard balls) $750,000
Less variableexpenses 450,000
Contributionmargin 300,000
Less fixedexpenses 210,000
Netincome $ 90,000
Required 1. Compute (a) the CM ratio and thebreak-even point in balls, and (b) the degree of operating leverageat last yearâs level of sales.
2. Due to an increase in labor rates, the company estimates thatvariable costs will increase by $3 per ball next year. If thischange takes place and the selling price per ball remains constantat $25, what will be the new CM ratio and break-even point inballs?
3. Refer to the data in (2) above. If the expected change invariable costs takes place, how many balls will have to be soldnext year to earn the same net income ($90,000) as last year?
4. Refer to the original data. The company is discussing theconstruction of a new, automated plant to manufacture the standardballs. The new plant would slash variable costs per ball by 40%,but it would cause fixed costs to double in amount per year. If thenew plant is built, what would be the companyâs new CM ratio andnew break-even point in balls?
5. Refer to the data in (4) above.
a. If the new plant is built, how many balls will haveto be sold next year to earn the same net income ($90,000) as lastyear?
b. Assume the new plant is built and that next year thecompany manufactures and sells 30,000 balls (the same number assold last year). Prepare a contribution income statement andcompute the degree of operating leverage.
c. If youwere a member of top management, would you
have voted in favorof constructing the new plant? Explain.
Please answerall questions (1-5) and show work for better understanding...Thankyou!
Northwood Companymanufactures basketballs. The company has a standard ball thatsells for $25. At present, the standard ball is manufactured in asmall plant that relies heavily on direct labor workers. Thus,variable costs are high, totaling $15 per ball.
Last year, the companysold 30,000 standard balls, with the following results:
Sales (30,000standard balls) $750,000
Less variableexpenses 450,000
Contributionmargin 300,000
Less fixedexpenses 210,000
Netincome $ 90,000
Required 1. Compute (a) the CM ratio and thebreak-even point in balls, and (b) the degree of operating leverageat last yearâs level of sales.
2. Due to an increase in labor rates, the company estimates thatvariable costs will increase by $3 per ball next year. If thischange takes place and the selling price per ball remains constantat $25, what will be the new CM ratio and break-even point inballs?
3. Refer to the data in (2) above. If the expected change invariable costs takes place, how many balls will have to be soldnext year to earn the same net income ($90,000) as last year?
4. Refer to the original data. The company is discussing theconstruction of a new, automated plant to manufacture the standardballs. The new plant would slash variable costs per ball by 40%,but it would cause fixed costs to double in amount per year. If thenew plant is built, what would be the companyâs new CM ratio andnew break-even point in balls?
5. Refer to the data in (4) above.
a. If the new plant is built, how many balls will haveto be sold next year to earn the same net income ($90,000) as lastyear?
b. Assume the new plant is built and that next year thecompany manufactures and sells 30,000 balls (the same number assold last year). Prepare a contribution income statement andcompute the degree of operating leverage.
c. If youwere a member of top management, would you
have voted in favorof constructing the new plant? Explain.