Question

Magic Reaim, Incorporated, has developed a new fantasy board game. The company sold 45,000 games last year at a selling price of: $61 per game. Fixed expenses associated with the game total $810,000 per yeac, and variable expenses are $41 per game. Production of the game is entrusted to a printing contractor. Variable expenses consist mostly of payments to this contractor. Required: . Prepare a contribution format income statement for the game last year.

Answer 1

The net operating income for Magic Realm, Incorporated's new fantasy board game last year is calculated by preparing a contribution format income statement. After comparing total sales revenue with variable and fixed expenses, the company earned $90,000 in net operating income from the sales of 45,000 games.

Step-by-step explanation:

Contribution Format Income Statement

To prepare a contribution format income statement for Magic Realm, Incorporated's new fantasy board game, we'll calculate the total contribution margin and then deduct the fixed expenses to determine the net operating income. Here's how it's done:

• First, calculate the total contribution margin by subtracting the variable expenses from the total sales revenue.
• Next, from the contribution margin, subtract the fixed expenses to find the net operating income.

For the game sold last year:

• Total Sales Revenue: 45,000 games * $61 per game = $2,745,000
• Total Variable Expenses: 45,000 games * $41 per game = $1,845,000

Thus, the Total Contribution Margin is:

$2,745,000 (Total Sales) - $1,845,000 (Total Variable Expenses) = $900,000

Finally, subtract the Total Fixed Expenses from the Contribution Margin to find the Net Operating Income:

$900,000 (Total Contribution Margin) - $810,000 (Total Fixed Expenses) = $90,000 Net Operating Income.

This income statement indicates that after covering all variable and fixed costs, Magic Realm, Incorporated earned a net operating income of $90,000 from their new fantasy board game last year.