ASKER’S NOTE: NEED HELP WITH“C” For a recent year, McDonald’s had the following

Question

ASKER’S NOTE: NEED HELP WITH“C”

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.

Sales – Variable costs

Variable costs

Food andpackaging              5,204

Payroll                                    4,040

40% of Gen./Sell./Admin.     888

Total variablecosts                10,132

Sales – Variable costs = 15,352 – 10,132 =5,220     

Contribution margin / sales x 100 = 5,220 / 15,352 x 100 =34%

Explanation / Answer

Part C Sales increased by 450 M 15,352 + 450 = 15,802 M Contribution Margin is 34 % Therefore , 15,802 * 34 %   = 5,373. Plug in the values into the formula to find the variable costs. Sales - variable costs = CM 15,802 - VC = 5,373 Vc = 15,802 - 5,373      = 10,429 Fixed costs Rent , dep - 1,022 60% of SGA   2,220*60%        1,322 TotalFC            2,344 Calculation of Income from operations            Sales                     15,802            Variable costs        10,429                CM     5,373 -           Fixed costs 2,344 Income from operations    3,029

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