Magic Realm, Inc., has developed a new fantasy board game. The company sold 49,0

Question

Magic Realm, Inc., has developed a new fantasy board game. The company sold 49,000 games last year at a selling price of $65 per game. Fixed expenses associated with the game total $882,000 per year, and variable expenses are $45 per game. Production of the game is entrusted to a printing contractor. Variable expenses consist mostly of payments to this contractor.

Required:

1-a. Prepare a contribution format income statement for the game last year.

1-b. Compute the degree of operating leverage.

2. Management is confident that the company can sell 62,720 games next year (an increase of 13,720 games, or 28%, over last year). Given this assumption:

a. What is the expected percentage increase in net operating income for next year?

b. What is the expected amount of net operating income for next year? (Do not prepare an income statement; use the degree of operating leverage to compute your answer.)

Explanation / Answer

Dear Student Thank you for using Chegg Please find below the answer    Statementshowing Computations Paticulars Amount Sales =49,000 * 65           3,185,000.00 Less Variable Expenses = 49,000*45         (2,205,000.00) Contribution Margin               980,000.00 Fixed cost            (882,000.00) Net operating income                 98,000.00 1-b Degree of operating leverage = 980,000/98000                         10.00 2-a Increase in net operating income = 10 *28% 280.00% 2-b expected amount of net operating income for next year = 98,000 * 98000*280%               372,400.00

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