Question
Exercise 5-15 Operating Leverage [LO5-4, LO5-8] Magic Realm, Inc., has developed a new fantasy board game. The company sold 17,000 games last year at a
Exercise 5-15 Operating Leverage [LO5-4, LO5-8]
Magic Realm, Inc., has developed a new fantasy board game. The company sold 17,000 games last year at a selling price of $61 per game. Fixed expenses associated with the game total $255,000 per year, and variable expenses are $41 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 21,420 games next year (an increase of 4,420 games, or 26%, over last year). |
a. | Compute the expected percentage increase in net operating income for next year. |
b. | Compute the expected total dollar net operating income for next year. (Do not prepare an income statement; use the degree of operating leverage to compute your answer.) |
Exercise 5-15 Operating Leverage [LO5-4, LO5-8]
Magic Realm, Inc., has developed a new fantasy board game. The company sold 17,000 games last year at a selling price of $61 per game. Fixed expenses associated with the game total $255,000 per year, and variable expenses are $41 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 21,420 games next year (an increase of 4,420 games, or 26%, over last year). |
a. | Compute the expected percentage increase in net operating income for next year. |
b. | Compute the expected total dollar net operating income for next year. (Do not prepare an income statement; use the degree of operating leverage to compute your answer.) |
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