Problem - Magic Realm, Inc., has developed a new fantasy board game. The company sold 43,500 games last year at a selling price of $62 per game. Fixed costs associated with the game total $783,000 per year, and variable costs are $42 per game. Production of the game is entrusted to a printing contractor. Variable costs consist mostly of payments to this contractor.
Requirement 1:
(a) Prepare a contribution format income statement for the game last year.
(b) Compute the degree of operating leverage.
Requirement 2: Management is confident that the company can sell 56,550 games next year (an increase of 13,050 games, or 30%, 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.