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

Magic Realm, Incorporated, developed a new fantas board game and sold $16,400$ units last year at a selling price of $$61$ per game. Fixed expenses associated with the game are $$246,000$ per year, and variable expenses are $$41$ 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.

$2.$ Management is confident that the company can sell $19,844$ games next year $($an increase of $3,444$ games, or $21\%,$ 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.

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

Magic Realm, Incorporated

Contribution Income Statement