Contribution Margin and Contribution Margin Ratio For a recent year, Wicker Comp

Question

Contribution Margin and Contribution Margin Ratio For a recent year, Wicker Company-owned restaurants had the following sales and expenses (in millions) Sales Food and packaging $26,000 $10,080 6,600 4,740 3,800 $25,220 Occupancy (rent, depreclation, etc.) General, selling, and administrative expenses Income from operations Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses. a. What Is Wicker Company's contribution margin? Round to the nearest million.(Give answer in millions of dollars) b. What is Wicker Company's contribution margin ratio? Round to one decimal place. c. How much would Income from operations Increase if same-store sales Increased by $1,600 million for the coming year, with no change in the contrbution margin ratio or fixed costs? Round your answer to the closest million million

Explanation / Answer

Sales = $26,000

Variable Costs = Food and packaging + Payroll + 40% of General, selling and administrative expenses
Variable Costs = $10,080 + $6,600 + 40% * $3,800
Variable Costs = $18,200

Fixed Costs = Occupancy + 60% of General, selling and administrative expenses
Fixed Costs = $4,740 + 60% * $3,800
Fixed Costs = $7,020

Answer a.

Contribution Margin = Sales - Variable Costs
Contribution Margin = $26,000 - $18,200
Contribution Margin = $7,800

Answer b.

Contribution Margin Ratio = Contribution Margin / Sales
Contribution Margin Ratio = $7,800 / $26,000
Contribution Margin Ratio = 30%

Answer c.

Increase in Sales = $1,600

Increase in Income from Operations = Contribution Margin Ratio * Increase in Sales
Increase in Income from Operations = 30% * $1,600
Increase in Income from Operations = $480

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