Exercise $5-15($Algo$)$ Operating Leverage $[$LO$5-2,$ LO$5-3]$

Magic Realm, Incorporated, developed a new fantasy board game and sold $18,600$ units last year at a selling price

of $$63$ per game. Fixed expenses associated with the game are $$279,000$ per year, and variable expenses are $$43$

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.

Management is confident that the company can sell $24,180$ games next year $($an increase of $5,580$ games, or

$30\%,$ 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.$)$

Answer is complete but not entirely correct.

Complete this question by entering your answers in the tabs below.

Req $1$ A

Req $1$B

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