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Northwood Company manufactures basketballs. The company has a ball that sells for $42. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $25.20 per ball, of which 60% is direct labor cost.

Last year, the company sold 44,000 of these balls, with the following results:

Sales (44,000 balls)	$	1,848,000
Variable expenses		1,108,800
Contribution margin		739,200
Fixed expenses		470,400
Net operating income	$	268,800

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 40%, but it would cause fixed expenses per year to increase by 99%. If the new plant is built, what would be the companys new CM ratio and new break-even point in balls? (Do not round intermediate calculations.)

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, $268,800, as last year? (Do not round intermediate calculations. Round up your final answer to the nearest whole number.)

b-1.	Assume the new plant is built and that next year the company manufactures and sells 44,000 balls (the same number as sold last year). Prepare a contribution format income statement (Do not round your intermediate calculations.)

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

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