Exercise Algo Operating Leverage LO LO
Magic Realm, Incorporated, developed a new fantasy board game and sold units last year at a selling price of $ per game.
Fixed expenses associated with the game are $ per year, and variable expenses are $ per game. Production of the game
was outsourced to a printing contractor, so variable expenses consist mostly of payments to this contractor.
Required:
a Prepare a contribution format income statement for the game last year.
b Compute the degree of operating leverage.
Management is confident that the company can sell games next year an increase of games, or 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? Do not prepare an income statement; use the degree of
operating leverage to compute your answer.
Complete this question by entering your answers in the tabs below.
Req
Prepare a contribution format income statement for the game last year.
