What Selling Price Per Ball Must It Charge Next Year To Cover The Increased Labor Costs?

Problem half dozen–27 Various CVP Questions: Break-Even Point; Cost Structure;

Target Sales [ LO1 , LO3 , LO4 , LO5 , LO6 , LO8] Sales (30,000 balls). . . . . . . . . . . . . . . . . . $750,000 Variable expenses . . . . . . . . . . . . . . . . . . . 450,000 Contribution margin . . . . . . . . . . . . . . . . . . 300,000 Fixed expenses . . . . . . . . . . . . . . . . . . . . . 210,000 Internet operating income . . . . . . . . . . . . . . . . $ ninety,000 Northwood Company manufactures basketballs. The company has a ball that sells for $25. At nowadays, the ball is manufactured in a minor constitute that relies heavily on direct labor workers. Thus, variable costs are high, totaling $15 per ball, of which 60% is direct labor price. Terminal year, the company sold 30,000 of these balls, with the post-obit results: Required: ane. Compute (a) the CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year'south sales level. 2. Due to an increase in labor rates, the company estimates that variable costs will increment by $three per ball next year. If this change takes place and the selling price per ball remains constant at $25, what volition exist the new CM ratio and break-even point in assurance? 3. Refer to the information in (ii) above. If the expected change in variable costs takes identify, how many balls will have to exist sold next year to earn the same cyberspace operating income ($90,000) as last yr? iv. Refer over again to the data in (2) above. The president feels that the company must raise the selling toll of its basketballs. If Northwood Company wants to maintain the same CM ratio every bit last year, what selling price per ball must it charge next twelvemonth to cover the increased labor costs? 5. Refer to the original data. The company is discussing the construction of a new, automated manufacturing establish. The new plant would slash variable costs per brawl past 40%, but it would cause fixed costs per twelvemonth to double. If the new plant is congenital, what would be the company'due south new CM ratio and new break-even point in balls? 6. Refer to the information in (five) above. a. If the new establish is built, how many balls volition have to be sold next year to earn the same net operating income, $xc,000, equally last year? b. Assume the new plant is built and that next yr the company manufactures and sells 30,000 balls (the aforementioned number as sold last yr). Gear up a contribution format income statement and compute the degree of operating leverage. c. If you were a member of peak management, would you have been in favor of constructing the new plant? Explain.

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What Selling Price Per Ball Must It Charge Next Year To Cover The Increased Labor Costs?,

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