You own Drip Painting company, which employs several painters. Your newest employee says "Now that we've bought drop cloths paint rollers, and other supplies, we should maximize the number of paint jobs we do that way we'll spread those fxed costs over more production". You reply.

1. "Nope, average fixed costs don't fall as you produce more."
2. "Hang on, doing more paint jobs also involves hiring more painters - that variable cost is actually much bigger than the fixed cost of equipment.
3. "You're confusing supply and demand."
4. "You're right sounds great!"

Magic realm, inc., has developed a new fantasy board game. the company sold 15,000 games last year at a selling price of $20 per game. fixed expenses associated with the game total $182,000 per year, and variable expenses are $6 per game. production of the game is entrusted to a printing contractor. variable expenses consist mostly of payments to this contractor.required: 1-a. prepare a contribution format income statement for the game last year.1-b. compute the degree of operating leverage.2. management is confident that the company can sell 58,880 games next year (an increase of 12,880 games, or 28%, over last year). given this assumption: a. what is the expected percentage increase in net operating income for next year? b. what is the expected amount of net operating income for next year? (do not prepare an income statement; use the degree of operating leverage to compute your answer.)