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

Magic Realm, Incorporated, developed a new fantasy board game and sold $45,000$ units last year at a selling price of $$63$ per game.

Fixed expenses associated with the game are $$810,000$ per year, and variable expenses are $$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 $55,800$ games next year $($an increase of $10,800$ games, or $24\%,$ 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 $1A$

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