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Northwood Company manufactures basketballs
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 costs are high, totaling $15 per ball, of which 60% is direct labor costs.
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 |
Compute (i) the CM ratio and the break-even point in balls, and (ii) the degree of operating leverage at last year's sales level.
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