Total Per Unit Sales 15000 games 300000 20 Variable Expenses 90000 6

Total per unit sales 15000 games 300000 20 variable

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Total Per Unit Sales (15,000 games) $300,000 $20 Variable Expenses 90,000 6 Contribution Margin 210,000 $14 Fixed Expenses 182,000 Net Operating Income 28,000 DOL= CM/Net Operating Income 210,000/ 28,000 =7.5 2. Management is confident that the company can sell 18,000 games next year (an increase of 3,000 games, or 20%, over last year). Compute: a. The expected percentage increase in net operating income for next year. Sales of 18,000 games represent a 20% increase over the previous year’s sales. The DOL is 7.5 so net income should increase 7.5 times as much or 7.5*20%=150% more. b. The expected total dollar net operating income for the next year. (No not prepare an income income statement; use the degree of operating leverage to compute your answer.) Previous Year’s Net Operating Income 28,000 Expected Increase in Net Operating Income (150%*28,000) 42,000 Total Expected Net Operating Income 70,000
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