Question

Magic Realm, Inc., has developed a new fantasy board game. The company sold 36,400 games last year at a selling price of $63 per game. Fixed expenses associated with the game total $637,000 per year, and variable expenses are $43 per game. Production of the game is entrusted to a printing contractor. Variable expenses consist mostly of payments to this contractor.

Management is confident that the company can sell 46,228 games next year (an increase of 9,828 games, or 27%, 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.)

net operating income increases by? __%

total net operating income?__

Answer 1

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