Magic Realm, Inc., has developed a new fantasy board game. The company sold 16,2

Question

Magic Realm, Inc., has developed a new fantasy board game. The company sold 16,200 games last year at a selling price of $64 per game. Fixed expenses associated with the game total $243,000 per year, and variable expenses are $44 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 20,412 games next year (an increase of 4,212 games, or 26%, 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.)

Magic Realm, Inc., has developed a new fantasy board game. The company sold 16,200 games last year at a selling price of $64 per game. Fixed expenses associated with the game total $243,000 per year, and variable expenses are $44 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 20,412 games next year (an increase of 4,212 games, or 26%, 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 price per unit                       64.00 Variable cost per unit                    (44.00) Contribution per unit                       20.00 Contribution margin ratio =39/130 31.25% 1-a) Sales        1,036,800.00 Less Variable Expenses          (712,800.00) Contribution Margin            324,000.00 Fixed cost          (243,000.00) Net operating income              81,000.00 1-b) degree of operating leverage =324000/81000                         4.00 2-a) expected percentage increase in net operating income = 4 * 26% 104% 2-b) expected amount of net operating income = 81000 + 81000*104%            165,240.00

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