Question

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 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 the CM ratio and the break-even point in balls.

Answer 1

Contribution margin ratio= 0.4

Break-even point (units)= 21000 units

Step-by-step explanation:

Giving the following information:

The company has a ball that sells for $25.

Variable expenses are high, totaling $15.00

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

Contribution margin ratio= [(selling price - unitary variable cost )/selling price]

Contribution margin ratio= [(25-15)/25]= 0.4

Break-even point (units)= fixed cost/contribution margin= 210000/10= 21000 units