Question

Thank you so much for the help!!!

Magic Realm, Inc., has developed a new fantasy board game. The company sold 48,000 games last year at a selling price of $69 per game. Fixed expenses associated with the game total $880,000 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 contractor. Required: 1a. 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 60,480 games next year (an increase of 12,480 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) Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Req 2 Prepare a contribution format income statement for the game last year. Magic Realm, Inc Contribution Income Statement Total Per Unit

Answer 1

1a		Sales	48,000 Units	@	$69		$3,312,000.00
		Variable Cost		@	$49		$2,352,000.00
		Contribution Margin		@	$20		$960,000.00
		Fixed Expenses					$880,000.00
1a		Net Operating Income					$80,000.00
1b		Degree of Operating Leverage			=		Contribution
							EBIT
					=		$960,000.00
							$80,000.00
1b		Degree of Operating Leverage			=		12
1c		Sales	60,480 Units	@	$69		$4,173,120.00
		Variable Cost		@	$49		$2,963,520.00
		Contribution Margin		@	$20		$1,209,600.00
		Fixed Expenses					$880,000.00
1c		Net Operating Income of next year					$329,600.00
1d		Increase in Sales			A		26%
		Degree of Operating Leverage			B		12
		Increase in Net Operating Income			A*B		3.12
		Additional Operating Income			$80,000*3.12		$249,600.00
1d		Net Operating Income of next year					$329,600.00