For a recent year, McDonald\'s company-owned restaurants had the following sales

Question

For a recent year, McDonald's company-owned restaurants had the following sales and expenses (in millions):
sales $ 16083
_________
food and packing $ 5350
payroll 4185
occupancy (rent,depression etc.) 4006
general selling and administration expenses 2340
__________
$ 15,881
income from opretions $ 202
_____________________
_________________________




Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses.

a. What is McDonald's contribution margin? Round to the nearest million. (Give answer in millions of dollars.)
$___________.

b. What is McDonald's contribution margin ratio? Round to one decimal place.
___________%

c. How much would income from operations increase if same-store sales increased by $500 million for the coming year, with no change in the contribution margin ratio or fixed costs? (Give answer in millions of dollars.)
___________$

Explanation / Answer

a. Contribution margin is the difference between sales and variable costs. 1. Total sales: $16,083 2. Total variable costs: [5,350+4,185+(.4*$2,340)] = $10,471 3. Contribution margin: [16,083-10,471]=$5,612 b. Contribution margin ratio is the contribution margin divided by sales. CM Ratio = $5,612 / 16,083 CM Ratio = 35% c. Income from operations would increase by $174. 1. New sales: [16,083+500] = $16,583 2. Percentage increase of sales: [500/16,083]=.0311 2. Total variable costs for the coming year: $10,797 [.0311*10,471=326+10,471=10,797] 3. Fixed costs: [(2,340*.6)+4,006]=$5,410 4. New income from operations: [16,583-10,797-5,410]= $376 5. Change in income from operations: [376-202]=$174

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.