QUESTION # 1
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 labour workers. Thus, variable costs are high, totaling $15 per ball.
Last year, the company sold 30,000 of these balls, with the following results:
Sales (30,000 balls) 750,000
Less: variable expenses 450,000
Contribution margin 300,000
Less fixed expenses 210,000
Net operating income 90,000
If you were a member of top management, would you have been in favour of constructing the new plant? EXPLAIN
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