Question Completion with original data:
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 38,000 of these balls, with the following results:
Sales (38,000 balls) $950, 000
Variable expenses 570, 000
Contribution margin 380, 000
Fixed expenses 264, 000
Net operating income $ 116, 000
Answer:
Northwood Company
New Contribution Margin Ratio:
0.64
New Break-even Point in balls:
33,000 balls
Explanation:
a) Data and Calculations:
Selling price = $25
Variable manufacturing cost = $15 per ball
Direct labor = 60% of $15 = $9
Other variable cost = $6 ($15 - $9)
Reduction of Variable manufacturing cost by 40% = $9 ($15 * 60%)
New fixed expenses = $528,000 ($264, 000 * 2)
Income Statement Value Per unit
Sales (38,000 balls) $950, 000 $25
Variable expenses 342, 000 $9
Contribution margin 608, 000 $16
Fixed expenses 528, 000
Net operating income $ 80, 000
Contribution margin ratio = $16/$25 = 0.64
Break-even point in unit sales = Fixed expenses/Contribution per margin
= $528,000/$16 = 33,000 balls
