20.00 points Magic Realm, Inc, has developed a new fantasy board game. The compa
ID: 2520641 • Letter: 2
Question
20.00 points Magic Realm, Inc, has developed a new fantasy board game. The company sold 32,400 games last year at a selling price of $68 per game. Fixed expenses associated with the game total $567,000 per year, and variable expenses are $48 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 Magic Realm, Inc. Contribution Income Statement Total Per Unit 1-b. Compute the degree of operating leverage. levera 2- Management is confident that the company can sell 40,500 games next year (an increase of 8.100 games, or 25%. over last year) a. Compute the expected percentage increase in net operating income for next year ratin e incr Caljmane tho tede tota oler nit gpereting noome fofened ear o not prepare an income b. Compute statement use the degree of operating leverage to compute your answer.) Type here to searchExplanation / Answer
1-a) Contribution format income statement: Particulars Total Sales(32400*68) 22,03,200 Variable cost(32400*48) 15,55,200 Contribution margin(Sales - Variable Cost) 6,48,000 Fixed expenses 5,67,000 Net operating income 81,000 1-b) Calculation of degree of operating leverage: Degree of operating leverage= Contribution margin/ net operating income = 648000/81000=8 Degree of operating leverage is 8 2-a) Calculation of impact on net operating income: Degree of operating leverage=Percentage Change in operating income/ Percentage change in sales 8= Percetage change in operating income/ 25% Percentage change in operating income= 8*25%=200% Therefore there is 200% increase in net operating income 2-b) Contribution format income statement: Particulars Total Sales(40500*68) 27,54,000 Variable cost(40500*48) 19,44,000 Contribution margin(Sales - Variable Cost) 8,10,000 Fixed expenses 5,67,000 Net operating income 2,43,000
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