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Module 3 Assignment

# Module 3 Assignment - Northwood Company manufactures...

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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 costs 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: Required: 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. 2. Due to an increase in labor rates, the company estimates that variable costs 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? 3. Refer to the data in (2) above. If the expected change in variable costs takes place, how many balls will have to be sold next year to earn the same net operating income (\$90,000) as last year?

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