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.
Related questions
Northwood Company manufactures basketballs. The company has aball that sells for $25. At present, the ball is manufactured in asmall 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 58,000 of these balls, with thefollowing results:
| Sales (58,000balls) | $ | 1,450,000 |
| Variable expenses | 870,000 | |
| Contribution margin | 580,000 | |
| Fixed expenses | 374,000 | |
| Net operating income | $ | 206,000 |
Required:
1. Compute (a) last year's CM ratio and the break-even point inballs, and (b) the degree of operating leverage at last yearâssales level.
2. Due to an increase in labor rates, the company estimates thatnext year's variable expenses will increase by $3.00 per ball. Ifthis change takes place and the selling price per ball remainsconstant at $25.00, what will be next year's CM ratio and thebreak-even point in balls?
3. Refer to the data in (2) above. If the expected change invariable expenses takes place, how many balls will have to be soldnext year to earn the same net operating income, $206,000, as lastyear?
4. Refer again to the data in (2) above. The president feelsthat the company must raise the selling price of its basketballs.If Northwood Company wants to maintain the same CM ratio as lastyear (as computed in requirement 1a), what selling price per ballmust it charge next year to cover the increased labor costs?
5. Refer to the original data. The company is discussing theconstruction of a new, automated manufacturing plant. The new plantwould slash variable expenses per ball by 40.00%, but it wouldcause fixed expenses per year to double. If the new plant is built,what would be the companyâs new CM ratio and new break-even pointin balls?
6. Refer to the data in (5) above.
a. If the new plant is built, how many balls will have to besold next year to earn the same net operating income, $206,000, aslast year?
b. Assume the new plant is built and that next year the companymanufactures and sells 58,000 balls (the same number as sold lastyear). Prepare a contribution format income statement and Computethe degree of operating leverage.
Northwood Company manufactures basketballs. The company has aball that sells for $36. At present, the ball is manufactured in asmall 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. |
| Lastyear, the company sold 52,000 of these balls, with the followingresults: |
| Sales (52,000balls) | $ | 1,872,000 |
| Variableexpenses | 1,310,400 | |
| Contributionmargin | 561,600 | |
| Fixed expenses | 453,600 | |
| Net operatingincome | $ | 108,000 |
| Required: |
| 1-a. | Compute the CM ratio and the break-even point in balls.(Do not round intermediate calculations. Round up yourfinal break even answers to the nearest whole number.) |
| CM Ratio ____% Unitsales to brealdown ______ balls |
| 1-b. | Compute the the degree of operating leverage at last yearâssales level. (Round your answer to 2 decimalplaces.) |
Degree of Operating Leverage _____ |
| 2. | Due to an increase in labor rates, the company estimates thatvariable expenses will increase by $1.80 per ball next year. Ifthis change takes place and the selling price per ball remainsconstant at $36.00, what will be the new CM ratio and break-evenpoint in balls? (Do not round intermediate calculations.Round up your final break even answers to the nearest wholenumber.) |
| CM Ratio_____% Unit Sales to break even _____ balls |
| 3. | Refer to the data in (2) above. If the expected change invariable expenses takes place, how many balls will have to be soldnext year to earn the same net operating income, $108,000, as lastyear?(Do not round intermediate calculations.Round your answer to the nearest wholeunit.) |
| Number ofballs____ |
| 4. | Refer again to the data in (2) above. The president feels thatthe company must raise the selling price of its basketballs. IfNorthwood Company wants to maintain the same CM ratio as last year,what selling price per ball must it charge next year to cover theincreased labor costs? (Do not round intermediatecalculations. Round your answer to 2 decimal places.) |
| Selling Price______
|
| 5. | Refer to the original data. The company is discussing theconstruction of a new, automated manufacturing plant. The new plantwould slash variable expenses per ball by 20%, but it would causefixed expenses per year to increase by 70%. If the new plant isbuilt, what would be the companyâs new CM ratio and new break-evenpoint in balls? (Do not round intermediate calculations.Round up your final break even answers to the nearest wholenumber.)
| |
| 6. | Refer to the data in (5) above. |
| a. | If the new plant is built, how many balls will have to be soldnext year to earn the same net operating income, $108,000, as lastyear? (Do not round intermediatecalculations.) Number of balls_____ |
| b-1. | Assume the new plant is built and that next year the companymanufactures and sells 52,000 balls (the same number as sold lastyear). Prepare a contribution format income statement. (Donot round your intermediate calculations.) |
| Northwood Company Contribution Income Statement |
| b-2. | Compute the degree of operating leverage. (Do not roundintermediate calculations and round your final answer to 2 decimalplaces.) |
| Degree of OperatingLeverage _____ |
Northwood Company manufactures basketballs. The company has aball that sells for $42. At present, the ball is manufactured in asmall plant that relies heavily on direct labor workers. Thus,variable expenses are high, totaling $25.20 per ball, of which 60%is direct labor cost. |
| Lastyear, the company sold 60,000 of these balls, with the followingresults: |
| Sales (60,000balls) | $ | 2,520,000 |
| Variableexpenses | 1,512,000 | |
| Contributionmargin | 1,008,000 | |
| Fixed expenses | 840,000 | |
| Net operatingincome | $ | 168,000 |
| Required: |
| 1-a. | Compute the CM ratio and the break-even point in balls.(Do not round intermediate calculations.) |
| 1-b. | Compute the the degree of operating leverage at last yearâssales level. (Round your answer to 2 decimalplaces.) |
| 2. | Due to an increase in labor rates, the company estimates thatvariable expenses will increase by $3.36 per ball next year. Ifthis change takes place and the selling price per ball remainsconstant at $42.00, what will be the new CM ratio and break-evenpoint in balls? (Do not round intermediatecalculations.) |
| 3. | Refer to the data in (2) above. If the expected change invariable expenses takes place, how many balls will have to be soldnext year to earn the same net operating income, $168,000, as lastyear? (Do not round intermediate calculations.Round your answer to the nearest wholeunit.) |
| 4. | Refer again to the data in (2) above. The president feels thatthe company must raise the selling price of its basketballs. IfNorthwood Company wants to maintain the same CM ratio as last year,what selling price per ball must it charge next year to cover theincreased labor costs? (Do not round intermediatecalculations. Round your answer to 2 decimal places.) |
| 5. | Refer to the original data. The company is discussing theconstruction of a new, automated manufacturing plant. The new plantwould slash variable expenses per ball by 40%, but it would causefixed expenses per year to increase by 88%. If the new plant isbuilt, what would be the companyâs new CM ratio and new break-evenpoint in balls? (Do not round intermediatecalculations.) |
| 6. | Refer to the data in (5) above. |
| a. | If the new plant is built, how many balls will have to be soldnext year to earn the same net operating income, $168,000, as lastyear? (Do not round intermediatecalculations.) |
| b-1. | Assume the new plant is built and that next year the companymanufactures and sells 60,000 balls (the same number as sold lastyear). Prepare a contribution format income |
| b-2. | Compute the degreeof operating leverage. (Round your answer to 2 decimalplaces.) |
