Answer: (a) CM ratio = 40, break even point in balls = 21,000 balls (b ) degree of operating leverage = 3
Explanation:
(a) To calculate the CM ratio , we use the formula
Selling price - variable expenses / selling price
Selling price = $25, variable expenses = $15
= (25 - 15 )/ 25
= 10 / 25
= 0.4 × 100
= 40
To calculate the break -even points in balls, we use the formula
Break even point = fixed cost / contribution per unit
Fixed cost = $210,000, Contribution per unit = (25 -15) = 10
210,000 / 10
= 21,000 balls
(b) To calculate the degree of operating leverage last year, we use the formula
Contribution margin / net income
Contribution margin =$300,000, net income = 90,000
= 300,000 / 90,000
= 3.33
= 3
