Problem
CVP: Goalie's Ball; Background information for Goalie's Ball, Inc.
Goalie's Ball, Inc. manufactures soccer balls. The company has a soccer ball that sells for $30 per ball. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $24 per ball, of which 80% is direct labor cost.
In 2021, the company sold 20,000 of these soccer balls, with the following results:
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Sales (20,000 balls)
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$600,000
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Variable expenses
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$480,000
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Contribution margin
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$120,000
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Fixed expenses
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$85,000
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Net operating income
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$35,000
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Question I: Compute 2021's break-even point in soccer balls for Goalie's Ball.
Question II: The company is discussing the construction of a new, automated manufacturing plant. The new plant would reduce variable expenses by 25% per ball, but it would cause total fixed expenses per year to increase by $70,000. If the new plant is built and these changes occur, calculate Goalie's Ball new break-even point in soccer balls (assume the sales price would still be $30 per soccer ball).