Contribution Margin and Contribution Margin Ratio For a recent year, McDonald\'s

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Contribution Margin and Contribution Margin Ratio

For a recent year, McDonald's Company-owned restaurants had the following sales and expenses (in millions):

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.)
$ million

b. What is McDonald's contribution margin ratio?
%

c. How much would income from operations increase if same-store sales increased by $2,500 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the closest million.
$ million

Sales $41,600 Food and packaging $16,180 Payroll 10,500 Occupancy (rent, depreciation, etc.) 7,570 General, selling, and administrative expenses 6,100 $40,350 Income from operations $1,250

Explanation / Answer

a) Contribution margin :

b) Contribution margin ratio = 12480*100/41600 = 30%

c) Increase income from operation = 2500*30% = $750 million

Sales 41600 Less: Food and packaging 16180 Payroll 10500 General, selling, and administrative expenses (6100*40%) 2440 Contribution margin 12480

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