1. Various CVP questions; Break-Even point; Cost structure; Target sales Northwood Company manufactures basketballs. The company has a ball that sells for $30. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $21.00 per ball, of which 70% is direct labor cost. Last year, the company sold 53,000 of these balls, with the following results: Sales (53,000 balls) Variable expenses 1,590,000 1,113,000 Contribution margin 477,000 Fixed expenses 378,000 Net operating income 99,000 Required: 1-a. Compute last year's CM ratio and the break-even point in balls. 1-b. Compute the degree of operating leverage at last year's sales level. 2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $1.50 per ball. If this change takes place and the selling price per remains constant at $30.00, what will be next year's CM ratio and the break-even point in ball 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, $99,000, as last year? %24 %24

1. Various CVP questions; Break-Even point; Cost structure; Target sales Northwood Company manufactures basketballs. The company has a ball that sells for $30. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $21.00 per ball, of which 70% is direct labor cost. Last year, the company sold 53,000 of these balls, with the following results: Sales (53,000 balls) Variable expenses 1,590,000 1,113,000 Contribution margin 477,000 Fixed expenses 378,000 Net operating income 99,000 Required: 1-a. Compute last year's CM ratio and the break-even point in balls. 1-b. Compute the degree of operating leverage at last year's sales level. 2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $1.50 per ball. If this change takes place and the selling price per remains constant at $30.00, what will be next year's CM ratio and the break-even point in ball 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, $99,000, as last year? %24 %24

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter6: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 21E

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Salvador Manufacturing builds and sells snowboards, skis and poles. The sales price and variable cost for each follows: Their sales mix is reflected in the ratio 7:3:2. If annual fixed costs shared by the three products are $196,200, how many units of each product will need to be sold in order for Salvador to break even?
Schylar Pharmaceuticals, Inc., plans to sell 130,000 units of antibiotic at an average price of 22 each in the coming year. Total variable costs equal 1,086,800. Total fixed costs equal 8,000,000. (Round all ratios to four significant digits, and round all dollar amounts to the nearest dollar.) Required: 1. What is the contribution margin per unit? What is the contribution margin ratio? 2. Calculate the sales revenue needed to break even. 3. Calculate the sales revenue needed to achieve a target profit of 245,000. 4. What if the average price per unit increased to 23.50? Recalculate: a. Contribution margin per unit b. Contribution margin ratio (rounded to four decimal places) c. Sales revenue needed to break even d. Sales revenue needed to achieve a target profit of 245,000
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