For a recent year, Wicker Company-owned restaurants had the following sales and

Question

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

Sales $17,800

Food and packaging $4,606

Payroll $4,500

Occupancy (rent, depreciation, etc.) $5,564

General, selling, and administrative expenses $2,600

Total: $17,270

Income from operations $530

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.)
$ million

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 $1,100 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the closest million.
$ million

Explanation / Answer

a.

Contribution margin=sales-variable cost

=17800-[(.4×2600)+4606+4500)

=17800-10146

=7654

b.

Contribution margin ratio=contribution margin/sales

=7654/17800

=43%

c .

New sale=17800+1100=18900

Variable cost=(1100/18900)×10146

=10736.51

Fixed cost=(.6×2600)+5564

=7124

New income from operation=18900-10736.51-7124

=1039.49

Change in income from operation=1040-530=510

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