Exercise 4-20

# Exercise 4-20 - Exercise 4-20 By Marvin V Mendoza Northwood...

• Homework Help
• 12
• 100% (10) 10 out of 10 people found this document helpful

This preview shows pages 1–5. Sign up to view the full content.

Exercise 4-20 By: Marvin V. Mendoza By: Marvin V. Mendoza

This preview has intentionally blurred sections. Sign up to view the full version.

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 per ball, of which 60% is direct labor cost. Last year, the company sold 30,000 of these balls, with the following results : Unit Price Quantity Amount Sales (30,000 balls) \$25.00 30,000 \$750,000.00 Variable Expenses \$15.00 30,000 \$450,000.00 Contribution Margin \$10.00 30,000 \$300,000.00 Fixed Expenses \$210,000.00 Net Operating Income \$90,000.00
1.Compute (a) the CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year's sales level CM Ratio CM/Sales 40.00% (\$300,000/ \$750,000) *100 Break-even (balls) Fixed Expense 21,000 balls (\$210,000/ \$10) CM Degre of Operating Leverage CM 3.33 (\$300,000/ \$90,000) NOI

This preview has intentionally blurred sections. Sign up to view the full version.

2. Due to an increase in labor rates, the company estimates that variable expenses will increase by \$3 per ball next year. If this change takes place and the selling price per ball remains constant at \$25, what will be the new CM ratio and break-even point in balls?
This is the end of the preview. Sign up to access the rest of the document.
• Summer '13
• bc

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern