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 $1,600 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 $26,500 Food and packaging $8,435 Payroll 6,700 Occupancy (rent, depreciation, etc.) 6,675 General, selling, and administrative expenses 3,900 $25,710 Income from operations $790

Explanation / Answer

Sales 26500 Variable cost Food and packaging 8435 payroll 6700 general, selling and administration(3900*40% 1560 Total variable cost 16695 a) Contribution margin 9805 b) Contribution margin ratio( contribution margin/sales (9805/26500) 0.37 c) increase in sale* contribution margin ratio(1600*0.37) 592 Therefore increase in contribution is 592

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