2. 
Due to an increase in labor rates, the company estimates that
variable expenses will increase by $1.60 per ball next year. If
this change takes place and the selling price per ball remains
constant at $32.00, what will be the new CM ratio and breakeven
point in balls? (Do not round intermediate
calculations.)





CM Ratio 

% 
Unit sales to break even 

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, $144,000, as last
year? (Do not round intermediate calculations.
Round your answer to the nearest whole
unit.)


4. 
Refer again to the data in (2) above. The president feels that
the company must raise the selling price of its basketballs. If
Northwood Company wants to maintain the same CM ratio as last year,
what selling price per ball must it charge next year to cover the
increased labor costs? (Do not round intermediate
calculations. Round your answer to 2 decimal places.)


5. 
Refer to the original data. The company is discussing the
construction of a new, automated manufacturing plant. The new plant
would slash variable expenses per ball by 20%, but it would cause
fixed expenses per year to increase by 80%. If the new plant is
built, what would be the company’s new CM ratio and new breakeven
point in balls? (Do not round intermediate
calculations.)





CM
Ratio 

% 
Unit
sales to break even 

balls 
6. 
Refer to the data in (5) above.
a. 
If the new plant is built, how many balls will have to be sold
next year to earn the same net operating income, $144,000, as last
year? (Do not round intermediate
calculations.)
b1. 
Assume the new plant is built and that next year the company
manufactures and sells 45,000 balls (the same number as sold last
year). Prepare a contribution format income statement (Do
not round your intermediate calculations.)


Northwood Company 
Contribution Income Statement 










b2. 
Compute the degree of operating leverage. (Do not round
intermediate calculations and round your final answer to 2 decimal
places.)












