Magic Realm, Inc., has developed a new fantasy board game. The company sold 35,6
ID: 2413723 • Letter: M
Question
Magic Realm, Inc., has developed a new fantasy board game. The company sold 35,600 games last year at a selling price of $69 per game. Fixed expenses associated with the game total $623,000 per year, and variable expenses are $49 per game. Production of the game is entrusted to a printing contractor. Variable expenses consist mostly of payments to this contrator 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 46,280 games next year (an increase of 10.680 games, or 30%, 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) Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 2 Management is confident that the company can sel 46,280 games next year an increase of ?O,680 games, or 30%, over last year). Given this assumption a. What is the expected percentage increase in net operating income for next year? Prev 1 of 4 Next>Explanation / Answer
Answer
Units
per unit
Amount
A
Sales Revenue
35600
$ 69.00
$ 24,56,400.00
B
Variable cost
35600
$ 49.00
$ 17,44,400.00
C=A-B
Contribution margin
35600
$ 20.00
$ 7,12,000.00
D
Fixed Cost
$ 6,23,000.00
E=C-D
Net Income
$ 89,000.00
A
Contribution margin
$ 7,12,000.00
B
Net Income
$ 89,000.00
C=A/B
Degree of Operating Leverage
8
A
Increase in Sales Volume
30%
B
Degree of Operating Leverage
8
C=AxB
% increase in Net Operating Income
240%
D
Current Net Income
$ 89,000.00
E=D + C% or [D + (D x C)]
Expected amount net income next year
$ 3,02,600.00
----Proving that increase in sales volume by 30% will make net operating income go up to $ 302,600
Units
per unit
Amount
A
Sales Revenue
46280
$ 69.00
$ 31,93,320.00
B
Variable cost
46280
$ 49.00
$ 22,67,720.00
C=A-B
Contribution margin
46280
$ 20.00
$ 9,25,600.00
D
Fixed Cost
$ 6,23,000.00
E=C-D
Net Income
$ 3,02,600.00
Units
per unit
Amount
A
Sales Revenue
35600
$ 69.00
$ 24,56,400.00
B
Variable cost
35600
$ 49.00
$ 17,44,400.00
C=A-B
Contribution margin
35600
$ 20.00
$ 7,12,000.00
D
Fixed Cost
$ 6,23,000.00
E=C-D
Net Income
$ 89,000.00
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