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Problem 4 Magical Creations Inc. has developed a new fantasy board game. In 2018, the firm sold 20,000 games at a sales price
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Answer #1
at 20000 Units level of sales at 25000 Units level of sales
sales 20000*30 600000 750000
less variable cost 20000*18 360000 450000
contribution 240000 300000
less fixed cost 190000 190000
EBIT 50000 110000
Degree of operating leverage = contribution/EBIT 240000/50000 4.8
% change in EBIT =(EBIT at 25000 unit level- EBIT at 20000 unit level)/EBIT at 20000 unit level (110000-50000)/50000 120%
% change in EBIT =(EBIT at 25000 unit level- EBIT at 20000 unit level)/EBIT at 20000 unit level % increase in sales* Degree of operating leverage (5000/20000)*4.8 120%
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