Proble

Magic Realm, Inc., has developed a new fantasy board game. The company sold 36,800 games last year at a selling price of $62 per game. Fixed expenses associated with the game total $644,000 per year, and variable expenses are $42 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 46,000 games next year (an increase of 9,200 games, or 25%, 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.