Reference no: EM132771422

Northwood is a company engaged solely in the manufacture of basketballs, which are bought mainly for sporting activities. Northwood uses CVP analysis to establish the minimum level of production to ensure profitability. The company has a ball that sells for £25. At present, the ball is manufactured in a small plant that relies heavily on direct labour workers. Therefore, variable expenses are high, totalling £15 per ball, of which 60% is direct labour 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:

Problem a. Compute last year's CM (C/S) ratio and the break-even point in balls.