For a recent year, McDonald’s had the following sales andexpenses (in millions):

Question

For a recent year, McDonald’s had the following sales andexpenses (in millions):

Sales                                                                           15,352

Food andpackaging                                                  5,204  

Payroll                                                                        4,040

Occupancy (rent, depreciation,etc)                           1,022

General, selling, and administrativeexpenses           2,220  

                                                                                   12,486

Income fromoperations                                             2,866

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

Note: b. 34.00%

Explanation / Answer

1. Contribution margin     Sales - variable costs Variable costs Food and packaging - 5,204 Payroll                     4,040 40% ofSGA               888 Total variable costs 10,132 sales - variable costs 15,352 - 10,132 = 5,220 M b. Contribution margin ratio         CM *100         sales     5,220   * 100     15,352 34 %

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