Reference no: EM133003913

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 $15.00 per ball, of which 60% is direct labor cost.

Last year, the company sold 52,000 of these balls, with the following results:

Sales (52,000 balls) $ 1,300,000
Variable expenses 780,000
Contribution margin 520,000
Fixed expenses 321,000
Net operating income $ 199,000

Required:

Problem 1. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per ball. If this change takes place and the selling price per ball remains constant at $25.00, what will be next year's CM ratio and the break-even point in balls?