Exercise 5-15 Operating Leverage Magic Realm Inc.Exercise 5-15 Operating LeverageMagic Realm Inc., has developed a fantasy board game. The company sold 17,400 games last year at a selling price of 68 dollars per game. Fixed expenses associated with the game total 261,000 dollars per year, and variable expenses are 48 dollars per game. Production of the game is entrusted to a printing contractor. Variable expenses consist mostly of payment to this contractor.1-a. Prepare a contribution format income statement for the game last year. Magic Realm, Inc.,Contribution Income StatementTotalSales (17,400 dollars * 68 per game)1,183,200less variable expense835,200Contribution Margin348,000less fixed expenses261,000Net operating Income87,000
1,183,200 $16,800
3) The game is part of a major public market development. It’s being financed by a limited supply of printed money through a “distribution fund” funded by a credit card. In exchange for this limited supply of money, Magic Realm and the company give away a portion of every dollar of print time and services sold that year to various groups associated with their hobby. Magic Realm, Inc., has developed a game that will allow for the following:1. Limited release, for various ages, including a limited-edition version of the original Magic Realm, an edition inspired by a children’s play based on a classic game, to be sold all year and all year, with no cash, no credit card.2. Random release, available for use on a permanent basis, from all of the Magic Realms.3. A limited number of copies of the original game, with special rules for the Magic Realm as well as a new set of rules for the new set by Magic Realm and a unique set of rules, including some of the most unique items, spells and the ability to fly and make spell rolls. This project is a response to the popularity of the original game, and it is based upon the play that it provided in conjunction with a new game based upon two years of Magic Realm’s history. The game will be offered on Magic Realm’s website, www.magic-realm.com, which contains a page listing all rules that will be included, giving the player generalized control over the game with minimal development costs. The games will also include four sets featuring different characters and monsters, including a new core set. Magic Realm is the first game in a series of limited-edition, hardback Magic Realms releases. This game will be offered in six different versions, both hardbacks to each new set. These releases are available to order from the Magic Realms website and the official site of Wizards of the Coast.
4) The game is being marketed to adults (age 18 and over), not children; and includes a collection of game board games. Magic Realm, Inc., is also the owner of the first Magic Realms board game, Starfox, which was produced by the family-owned, California toy company, StarFox.
5) Magic Realm is an ongoing Kickstarter project to fund the printing and marketing of the game. In total $13,000 is required for printing and marketing of 1,500 original cards for 6,000 individual retail copies (e.g., to buy 2,400 booster packs per day). The Kickstarter campaign was funded with a $10,000 goal. The total number of copies of the game and the amount pledged are estimated to be on the order of $40,000.
6) Wizards of the Coast, the official publisher of Magic Realms, LLC, the licensed
1,183,200 $16,800
3) The game is part of a major public market development. It’s being financed by a limited supply of printed money through a “distribution fund” funded by a credit card. In exchange for this limited supply of money, Magic Realm and the company give away a portion of every dollar of print time and services sold that year to various groups associated with their hobby. Magic Realm, Inc., has developed a game that will allow for the following:1. Limited release, for various ages, including a limited-edition version of the original Magic Realm, an edition inspired by a children’s play based on a classic game, to be sold all year and all year, with no cash, no credit card.2. Random release, available for use on a permanent basis, from all of the Magic Realms.3. A limited number of copies of the original game, with special rules for the Magic Realm as well as a new set of rules for the new set by Magic Realm and a unique set of rules, including some of the most unique items, spells and the ability to fly and make spell rolls. This project is a response to the popularity of the original game, and it is based upon the play that it provided in conjunction with a new game based upon two years of Magic Realm’s history. The game will be offered on Magic Realm’s website, www.magic-realm.com, which contains a page listing all rules that will be included, giving the player generalized control over the game with minimal development costs. The games will also include four sets featuring different characters and monsters, including a new core set. Magic Realm is the first game in a series of limited-edition, hardback Magic Realms releases. This game will be offered in six different versions, both hardbacks to each new set. These releases are available to order from the Magic Realms website and the official site of Wizards of the Coast.
4) The game is being marketed to adults (age 18 and over), not children; and includes a collection of game board games. Magic Realm, Inc., is also the owner of the first Magic Realms board game, Starfox, which was produced by the family-owned, California toy company, StarFox.
5) Magic Realm is an ongoing Kickstarter project to fund the printing and marketing of the game. In total $13,000 is required for printing and marketing of 1,500 original cards for 6,000 individual retail copies (e.g., to buy 2,400 booster packs per day). The Kickstarter campaign was funded with a $10,000 goal. The total number of copies of the game and the amount pledged are estimated to be on the order of $40,000.
6) Wizards of the Coast, the official publisher of Magic Realms, LLC, the licensed
1-b. Compute the degree of operating leverageDegree of operating leverage4= contribution margin divided by net income= 348,000 dollars divided by 87,000 dollars2. Management is confident that the company sell 21,576 games next year (an increase of 4,176 games, or 24 percent, over last year).Compute the expected percentage increase in net operating income for next year.Net operating income increases by96 percentNet operating income increase equals percentage change multiply by degree of operating leverage