Northwood Company manufactures a basketball selling for $25 per unit in a small plant heavily relying...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Northwood Company manufactures a basketball selling for $25 per unit in a small plant heavily relying 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 30,500 balls, with the following results: Sales (30,500 balls) Variable expenses Contribution margin Fixed expenses Net operating income $ 762,500 457,500 305,000 212,800 $ 92,200 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 next year's variable expenses will increase by $3 per ball. If this change takes place and the selling price per ball remains constant at $25, 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, $92,200, as last year? 4. Refer again to the data in requirement 2. 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 (as computed in requirement 1a), 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 manufacturing 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, $92,200, as last year? b. Assume the new plant is built and that next year the company manufactures and sells 30,500 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage. Northwood Company manufactures a basketball selling for $25 per unit in a small plant heavily relying 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 30,500 balls, with the following results: Sales (30,500 balls) Variable expenses Contribution margin Fixed expenses Net operating income $ 762,500 457,500 305,000 212,800 $ 92,200 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 next year's variable expenses will increase by $3 per ball. If this change takes place and the selling price per ball remains constant at $25, 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, $92,200, as last year? 4. Refer again to the data in requirement 2. 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 (as computed in requirement 1a), 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 manufacturing 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, $92,200, as last year? b. Assume the new plant is built and that next year the company manufactures and sells 30,500 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage.
Expert Answer:
Answer rating: 100% (QA)
Lets break down and answer each of the requirements step by step Compute a last years CM ratio and the breakeven point in balls and b the degree of operating leverage at last years sales level a CM Co... View the full answer
Related Book For
Managerial Accounting
ISBN: 978-0697789938
13th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Posted Date:
Students also viewed these accounting questions
-
Following are given: A cortical bone size is Do = 20 mm, Dm= 15 mm. The implants are (i) solid circular 10 mm diameter, (ii) square 9 mm side and (iii) rectangle 10 mm x 8 mm. Elastic moduli are 40,...
-
TEST CODE Problem 4 (5 marks) Write a function interpolation which takes an input parameter y (a Python list or NumPy array of length N) and returns a NumPy array c of length len (y) consisting of...
-
Create a Python program using either dpkt or scapy to analyze your capture. The program should should create a sliding window of adjustable length. For each window return a number between -1 and 1,...
-
What are the concepts of traditional and contemporary organizational design? Will these designs be influenced differently by management and the environment?
-
Figure 1 gives the layout of a house with four rooms connected by doors. Room I contains a mousetrap, and room II contains cheese. A mouse, after being placed in one of the rooms, will search for...
-
The controller for Clair Co. is attempting to determine the amount of cash to be reported on its December 31, 2014, balance sheet. The following information is provided. 1. Commercial savings account...
-
What is the relevance of industry comparison?
-
An audit partner of a CPA firm invested in a computer side business with a member of the board of directors of a public company that sells insurance and is an audit client of that CPA firm. Identify...
-
Stucco Ltd, a tile manufacturer, reported a profit before tax of R5 000 000 for the year ended 31 December 2022. Included in the profit before tax are the following: R Dividends received from SA...
-
Based on Figure 1-6 in the text, draw a diagram of functional segments for a manufacturer ofdiversified products. The general characteristics of the firm are as follows: a. The organization produces...
-
R2 = An ideal emf device (24.0 V) is connected to a set of resistors as shown in the figure below. If R = 23.80, R current through resistor R3. Your response differs from the correct answer by more...
-
Congestion is a common problem on roads and other transportation systems. Carefully explain what an economist means by congestion and why it is an economic problem.What type of user charge can solve...
-
Suppose you are assigned to assess a 50,000-square-foot office building that is currently fully leased at $10 per square foot. The owners annual costs of operation for the building(interest,...
-
The role of state governments in providing public primary and secondary education varies greatly. In one case, the state government operates the school system; in a number of others, the state...
-
States can generate revenue either by becoming the sole producer of a good or service and retaining the monopoly profits as revenue or by taxing goods or services provided by private competitive...
-
Suppose that you live in a house with a market and taxable value of $100,000 in a community with a property tax rate of $30 per $1,000 of taxable value. (a) What is your property tax amount? (b) What...
-
Transport Ltd is considering fitting a mounted forklift to each of its five delivery trucks. They have decided to base their decision on the accounting rate of return and provide you with the...
-
What is the purpose of the journal wizard?
-
Management of Mittel Rhein AG of Koln, Germany, would like to reduce the amount of time between when a customer places an order and when the order is shipped. For the first quarter of operations...
-
Milo Company manufactures beach umbrellas. The company is preparing detailed budgets for the third quarter and has assembled the following information to assist in the budget preparation: (a) The...
-
The Polaris Company uses a job-order costing system. The following data relate to October, the first month of the companys fiscal year. a. Raw materials purchased on account, $210,000. b. Raw...
-
The following thermal decomposition occurs at \(400 \mathrm{~K}\) : \[ A(\mathrm{~s}) ightarrow B(\mathrm{~s})+C(\mathrm{~g}) \] The standard Gibbs free energy of the reaction, \(\Delta...
-
The hydrate of sodium carbonate decomposes according to the following equation: \[ \mathrm{Na}_{2} \mathrm{CO}_{3} \cdot \mathrm{H}_{2} \mathrm{O}(\mathrm{s}) ightarrow \mathrm{Na}_{2}...
-
In a steel reactor, steam is passed over a bed of red-hot carbon at \(875 \mathrm{~K}\) and 1 bar. At these conditions, the equilibrium constant for the reaction is 0.514 . Calculate the equilibrium...
Study smarter with the SolutionInn App