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Problem 5-20 CVP Applications: Break-Even Analysis; Cost Structure; Target Sales [LO5-1, LO5- 3, LO5-4, Lo5-5, LO5-6, LO5-8 Northwood Company manufactures basketballs. The company has a ball that sells for $49. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $34.30 per ball, of which 70% is direct labor cost. Last year, the company sold 58,000 of these balls, with the following results Sales (58,000 bal1s) Variable expenses Contribution margin Fixed expenses Net operating income $ 2,842,000 1,989,400 852,600 705,600 $147,000 Required: 1. Compute (e) 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 $4.90 per ball. If this change takes place and the selling price per ball remains constant at $49.00, what will be next year's CM ratio and the break-even point in balls?