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 60,000 of these balls, with the following results: Sales (60,000 balls) $1,500,000
Variable expenses 900,000
Contribution margin 600,000
Fixed expenses 375,000
Net operating income $225,000

Required:
a. Compute the CM ratio and the break-even point in balls.
b. Compute the the degree of operating leverage at last year

A. 37,500 balls

B.2.67

Explanation:

A. Compution for the CM ratio and the break-even point in balls.

First step is to calculate the Contribution margin

Selling price $25 100%

Variable expenses $15 60%

Contribution margin $10 40%

($25-$15)

Now let calculate the CM ratio and the break-even point in balls using this formula

Unit sales to break even=Fixed expenses/Unit contribution margin

Let plug in the formula

Unit sales to break even=$375,000/$10

Unit sales to break even= 37,500 balls

Therefore the CM ratio and the break-even point in balls will be 37,500 balls

b. Computation for the degree of operating leverage at last year

Using this formula

Degree of operating leverage =Contribution margin/Net operating income

Let plug in the formula

Degree of operating leverage=$600,000/$225,000=

Degree of operating leverage = 2.67 (rounded)

Therefore the degree of operating leverage at last year will be 2.67

our agriculture industry and our business industry

the definition of a small business is an independently owned and operated company that is limited in size and in revenue depending on the industry. a local bakery that employs 10 people is an example of a small business. a manufacturing facility that employees less than 500 people is an example of a small business.