Problem 6-20 CVP Applications: Break-Even Analysis; Cost Structure; Target Sales (L06-1, LO6-3, L06- 4, L06-5, LO6-6, LO6-8) Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small 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 32,000 of these balls, with the following results: sk inces Sales (32,000 balls) Variable expenses Contribution margin Fixed expenses Net operating income 800,000 480,000 320,000 211,000 109,000 $ 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 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 $25.00, what will be next year's CM ratio and the break-even point in 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, $109,000, as last year? 1 Daar aan te the sta in hun Tha praeinant foole that the Amernice the colline Ranfite haelathalle