5-8, 5-15, on pages 227 to 231

EXERCISE 5–8 Compute the Margin of Safety LO5–7Molander Corporation is a distributor of a sun umbrella used atresort hotels. Data concerning the next month’s budget appearbelow:

Selling price per unit. . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . $30

Variable expense per unit . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . $20

Fixed expense per month . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . $7,500

Unit sales per month. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . 1,000

Required: 1. What is the company’s margin of safety? 2. What isthe company’s margin of safety as a percentage of its sales?

EXERCISE 5–15 Operating Leverage LO5–1, LO5–8Magic Realm, Inc., has developed a new fantasy board game. Thecompany sold 15,000 games last year at a selling price of $20 pergame. Fixed expenses associated with the game total $182,000 peryear, and variable expenses are $6 per game. Production of the gameis entrusted to a printing contractor. Variable expenses consistmostly of payments to this contractor.

Required:

1. Prepare a contribution format income statement for the gamelast year and compute the degree of operating leverage.

2. Management is confident that the company can sell 18,000games next year (an increase of 3,000 games, or 20%, over lastyear). Given this assumption:

a. What is the expected percentageincrease in net operating income for next year?

b. What is the expected amount of netoperating income for next year? (Do not prepare an incomestatement; use the degree of operating leverage to compute youranswer.)