Exercise $5-15($Static$)$ Operating Leverage $[$LO$5-1,$ LO$5-8]$

Magic Realm, Incorporated, has developed a new fantasy board game. The company sold $15,000$ games last year at a selling price of

$$20$ per game. Fixed expenses associated with the game total $$182,000$ per year, and variable expenses are $$6$ 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.

Management is confident that the company can sell $18,000$ games next year $($an increase of $3,000$ games, or $20\%,$ over last year$).$

Given this assumption:

a$.$ What is the expected kercentage 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 $1$ A

Prepare a contribution format income statement for the game last year.