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

Question

Contribution Margin and Contribution Margin Ratio

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

Sales $39,800

Food and packaging $10,764

Payroll 10,000

Occupancy (rent, depreciation, etc.) 12,046

General, selling, and administrative expenses 5,800

$38,610

Income from operations $1,190

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 $2,400 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

Answers

Cost

Variable

Fixed

Food & packaging

$10764

payRoll

$10000

Occupancy

$12046

General Selling Administrative expenses

$2320 [5800 x 40%]

$3480 [5800 x 60%]

Total

$23,084

$15,526

A

Sales

$39800

B

Total variable cost

$23084

C=A-B

Contribution margin [Answer (a)]

$16,716

D=(C/A) x 100

Contribution margin ratio [Answer (b)]

42%

A

Sales increased by

$2,400

B= A x 42%

Net Income would increase by [Answer (c)]

$1,008

Cost

Variable

Fixed

Food & packaging

$10764

payRoll

$10000

Occupancy

$12046

General Selling Administrative expenses

$2320 [5800 x 40%]

$3480 [5800 x 60%]

Total

$23,084

$15,526

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