Compute the degree of operating leverage

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Reference no: EM133152009

Question - Operating Leverage - Magic Realm, Incorporated, has developed a new fantasy board game. The company sold 8,100 games last year at a selling price of $68 per game. Fixed expenses associated with the game total $81,000 per year, and variable expenses are $48 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 confident that the company can sell 10,449 games next year (an increase of 2,349 games, or 29%, 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: EM133152009

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