Magic Realm, Inc., has developed a new fantasy board game. The company sold 25,800 games last year at a selling price of $60 per game. Fixed expenses associated with the game total $430,000 per year, and variable expenses are $40 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.

Magic Realm Inc (Income Statement)

	Total	Per Unit
Sales
variable expenses
contribution margin		$
fixed expenses
net operating income	$

1b. Compute the degree of operating leverage.

Degree of operating leverage

2.	Management is confident that the company can sell 31,992 games next year (an increase of 6,192 games, or 24%, over last year).

a.

Compute the expected percentage increase in net operating income for next year.

Net operating income increases by

%

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.)

Total expected net operating income