30,000 balls currently being sold) to earn the same amount of net oper-
ating income as last year. The computations above and in part (2) show
quite clearly the dramatic effect that increases in variable costs can have
on an organization. The effects on Northwood Company are summarized
below:
Present Expected
Combination margin ratio... 40% 28%
Break-even point (in balls) ... 21,000 30,000
Sales (in balls) needed to earn a $90,000 profit .... 30,000 42,857
Note particularly that if variable costs do increase next year, then the
company will just break even if it sells the same number of balls
(30,000) as it did last year.
Problem 6-24 (continued)
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