1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Musya8 [376]
3 years ago
12

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:
Sales (30,000 balls) $750,000
Variable expenses 450,000
Contribution margin 300,000
Fixed expenses 210,000
Net operating income 90,000
Required:
1A. Compute the CM ratio and the break-even point in balls.
1B. Compute the the degree of operating leverage at last year.
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 con- stant 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 expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $90,000, as 5. last year? The president feels that the company must raise the sell- ing price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year, what selling price per ball must it charge next year to cover the increased labor costs?
4. 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%, 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?
Refer to the data in (5) above.
A. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $90,000, as last year?
B. Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage.
C. If you were a member of top management, would you have been in favor of constructing the new plant? Explain.
Business
1 answer:
Yuki888 [10]3 years ago
5 0

Answer:

1A. Compute the CM ratio and the break-even point in balls.

  • CM ratio = 2.5
  • break even point = 21,000 balls

1B. Compute the degree of operating leverage at last year.

  • 31.82%

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?

  • CM ratio = 3.57
  • break even point = 30,000 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, $90,000, as 5. last year? The president feels that the company must raise the sell- ing price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year, what selling price per ball must it charge next year to cover the increased labor costs?

  • 42,858 balls
  • new price of $28 per ball

4. 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%, 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?

  • CM = 1.32
  • 26,250 balls

A. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $90,000, as last year?

31,875 balls

B. Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage.

Income Statement

Total revenue $750,000

Variable expenses $270,000

Contribution margin $480,000

Fixed expenses $420,000

Net operating income $60,000

Degree of operating leverage = 60.87%

C. If you were a member of top management, would you have been in favor of constructing the new plant?

If you cannot avoid paying the salary raise, then the company needs to carry on the new plant project.

Explanation:

sales price per ball = $25

variable expenses: $15 per unit

  • direct labor $9
  • other variable costs $6

CM ratio = net sales / CM = $750,000 / $300,000 = 2.5

break even point = total fixed costs / CM per unit = $210,000 / $10 = 21,000 balls

degree of operating leverage = fixed costs / total costs = $210,000 / $660,000 = 31.82%

new CM ratio = net sales / CM = $750,000 / $210,000 = 3.57

break even point = total fixed costs / CM per unit = $210,000 / $7 = 30,000 balls

sales level for $90,000 profit = ($210,000 + $90,000) / $7 = 42,857.14 ≈ 42,858 balls

CM ratio (new plant) = net sales / CM = $750,000 / $570,000 = 1.32

break even point = total fixed costs / CM per unit = $420,000 / $16 = 26,250 balls

sales level for $90,000 profit = ($420,000 + $90,000) / $16 = 31,875 balls

You might be interested in
Process costing would be most likely used by a A. salsa company. B. soft drink manufacturer. C. cereal company. D. all of the ab
Lana71 [14]

Answer:

All of the above would use process costing.

Explanation:

Process costing can be defined as a method of assigning manufacturing costs whereby the cost of each unit produced is assumed to be the same cost for every unit.

Process costing is most commonly applied when goods are produced in large numbers and when the costs linked to individual units cannot be easily differentiated from each other.

Under process costing, costs rise over a fixed period of time, and are then assigned to all the units produced throughout that period.

4 0
3 years ago
(Appendix 11.1) Depreciation for Financial Statements and Income Tax Purposes Dinkle Company purchased equipment for $50,000. Th
Romashka-Z-Leto [24]

Answer and Explanation:

The computation is shown below:

For year 1

According to the Company's Books Depreciation

= (Orginal Cost - Salvage value) ÷ useful Life

= ($50,000 - $5,000)  ÷ 10 years

= $4,500

According to the Income Tax Depreciation

= Cost × MACRS Rate for Year 1

= $50,000  × 20%

= $10,000

So, the difference in year 1 is

= $10,000 - $4,500

= $5,500

For year 2

According to the Company's Books Depreciation

= (Orginal Cost - Salvage value) ÷ useful Life

= ($50,000 - $5,000)  ÷ 10 years

= $4,500

According to the Income Tax Depreciation

= Cost × MACRS Rate for Year 2

= $50,000  × 32%

= $16,000

So, the difference in year 1 is

= $16,000 - $4,500

= $11,500

7 0
3 years ago
The fed wants to decrease the money supply when the economy is booming and inflationary pressures ________ in the economy.
aleksandr82 [10.1K]
Hey there.......


the answer is .........
   raises

hope it helps


extra info: The inflation gap is a Negative function of the unemployment gap. Expectations eliminate the effectiveness of the policy.

more

When decelerating below long-run trend growth, stimulate it with expansionary policy.
8 0
3 years ago
Debra is the day-shift supervisor at a company that manufactures and supplies plastic bottles to pharmaceutical companies. She i
JulsSmile [24]

I believe the answer is: First-line manager

First-line managers refers to the manager that directly supervise the production process on site. First-line manager typically does not involved during the creation of long-term planning, but they would had the first-hand information regarding employees performance and the type of problems that exist with the clients.

5 0
3 years ago
A microchip company wants a computer company to produce more powerful tablets and therefore use more of its chips. That same com
sesenic [268]

Answer:

"The two companies should enter a strategic alliance to bring about a win-win situation for them and to limit their rivals' power."

Explanation:

A strategic alliance occurs when two companies agree to cooperate and work together on a project that mutually benefits them both, while they both remain independent companies.

Since the microchip company and the computer company have a common goal that benefits both of them, then a strategic alliance would be the best way to achieve their goals and provide maximum value to their stockholders.

8 0
3 years ago
Other questions:
  • Select sales companies offer of shares of stock in itself to anyone who is willing to pay $60 per share is
    5·1 answer
  • Dawson Corporation has the following information available for 2014: (in millions) Issued common stock $45 Retired common stock
    14·1 answer
  • Perle, a dentist, billed Wood $600 for dental services. Wood paid Perle $200 cash and built a bookcase for Perle’s office in ful
    14·1 answer
  • On July 8, Action Co. issued a $70,000, 6%, 120-day note payable to Scanlon Co. Assuming a 360-day year, what information is nee
    12·1 answer
  • What is a construction foreman
    12·2 answers
  • An employer compared the average salaries of their employees over the past two years. They found that the average salary had inc
    7·1 answer
  • Privacy act of 1974, the US government is prohibited from storing many types of data about US citizens. The act does NOT prohibi
    15·1 answer
  • One thousand adults live in Milltown. Every day, they all leave work at 4:30 p.m., arrive home at exactly 5:00 p.m., and go to b
    15·1 answer
  • Using ________, measurements such as testing assumptions about the business, attributes the customers like, and retention rates
    5·1 answer
  • Organizations offer aspiring entrepreneurs in developing countries small loans to help them get their businesses started. these
    14·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!