Compute the degree of operating leverage

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Problem - Magic Realm, Inc., has developed a new fantasy board game. The company sold 37,200 games last year at a selling price of $61 per game. Fixed expenses associated with the game total $651,000 per year, and variable expenses are $41 per game. Production of the game is entrusted to a printing contractor. 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 con?dent that the company can sell 46,128 games next year [an increase of 8,928 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?

Reference no: EM132944228

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