Magic Realm, Incorporated, developed a new fantasy board game and sold 52,200 units last year at a selling price of $66 per game.
Fixed expenses associated with the game are $957,000 per year, and variable expenses are $46 per game. Production of the game
was outsourced to a printing contractor, so 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 65,250 games next year (an increase of 13,050 games, or 25%, 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.)
Complete this question by entering your answers in the tabs below.
Required 1A Required 1B Required 2
Prepare a contribution format income statement for the game last year.
Magic Realm, Incorporated
Contribution Income Statement
Total Per Unit
Sales $ 3,445,200 $ 66
Variable expenses 2,399,200 46
Contribution margin 1,046,000 $ 20
Fixed expenses 957,000
Net operating income $ 89,000
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