[sagnik2422]

Northwood Company manufactures basketballs. The company has a ball that sells for $35. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $21.00 per ball, of which 60% is direct labor cost.

Last year, the company sold 41,000 of these balls, with the following results:

Sales (41,000 balls)	$	1,435,000
Variable expenses		861,000
Contribution margin		574,000
Fixed expenses		420,000
Net operating income	$	154,000

I answered a variation of the question correctly as follows:



2.

Due to an increase in labor rates, the company estimates that variable expenses will increase by $2.80 per ball next year. If this change takes place and the selling price per ball remains constant at $35.00, what will be the new CM ratio and break-even point in balls? (Do not round intermediate calculations.)

I got CM ratio as 32% and unit sales to break even as 37,500 balls

But I am stuck on this part of the continued problem:

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.) My work : I tried to use formula CM ratio = unit contribution margin/ unit selling price and plugged in 40% = 11.2 / x but the answer this yielded was wrong. Please help with steps on how to solve :)

[paraclete]

You need to develop an understanding of breakeven analysis

[sagnik2422]

You need to develop an understanding of breakeven analysis

Can you show me how that applies in this question please ?