Reference no: EM133014265
Question - HEROS Company manufactures Footballs. The company has a ball that sells for $28. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable costs are high, totalling $17 per ball, of which 60% is direct labor cost.
Sales (35,000 balls) $ 980,000
Variable expenses $ ?
Contribution margin % ? %
Fixed expenses $155,000
Net operating income $230,000
Required -
1. Compute the total variable cost?
2. Compute the CM and the CM %?
3. Compute the Break-even point?
4. Due to an increase in labor rates, the company estimates that variable costs will increase by $3 per ball next year. If this change takes place and the selling price per ball remains constant at $28, what will be the new CM % and break-even point in balls?
5. Refer to the data in (point 4) above. If the expected change in variable costs takes place, how many balls will have to be sold next year to earn the same net operating income $230,000 as last year?
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