Reference no: EM132765745

Question - Klinken Corporation's contribution margin ratio on the sale of its most popular product is 42%. The product is priced at $100, annual fixed expenses are $900,000. Management is evaluating two options: (1) lowering variable costs by 15% and (2) reducing fixed expenses by 15%.

Required: Calculate the current level of break-even sales in dollars, as well as the break-even sales for the two options.

Magic Realm, Inc. has developed a new fantasy board game. The company sold 15,000 games last year at a selling price of $21 per game. Fixed costs associated with the game total $182,000 per year, and variable costs are $7 per game. Production of the game is entrusted to a printing contractor. Variable costs consist mostly of payments to this contractor.

Required:1-a. Have an income statement for the game last year.

1-b. Compute the degree of operating leverage.

2. Management believes that the company's sales will increase by 2,850 games next year.

Compute the following: a. The expected percentage increase in net income for next year.

b. The expected total dollar net income for next year. (Do not have an income statement; use the degree of operating leverage to compute your answer.)