Contribution Margin and The percentage of each sales dollar that is available to

Question

Contribution Margin and The percentage of each sales dollar that is available to cover the fixed costs and provide income from operations.Contribution Margin Ratio

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

Assume that the Costs that vary in total dollar amount as the level of activity changes.variable costs consist of food and packaging, payroll, and 45% of the general, selling, and administrative expenses.

a. What is McDonald's contribution margin? Enter your answer in million, rounded to one decimal place.
$ million

b. What is McDonald's contribution margin ratio? Round your percentage answer to one decimal place.
%

c. Use the rounded contribution margin ratio value to answer the following question: how much would operating income increase if same-store sales increased by $500 million for the coming year, with no change in the contribution margin ratio or Costs that tend to remain the same in amount, regardless of variations in the level of activity.fixed costs?
$ million

d. What would have been the operating income or loss for the recent year if sales had been $500 million more?
$ million

e. Use the rounded contribution margin ratio value to answer the following question: To achieve break even for the recent year, by how much would sales need to increase?
$ million

Sales   $16,488 Food and packaging   $5,552 Payroll 4,400 Occupancy (rent, depreciation, etc.) 4,025 General, selling, and admin. expenses    2,434 Other expense 209 Total expenses (16,620) Operating income (loss) $(132)

Explanation / Answer

Sales    $16,488 Total variable cost: Food and Packaging   $ 5,552 payroll                             $ 4,400 General & Selling exp $ 1,095.30 (2434*45%) Total variable cost : $ 11,047.30 Req A.Contribution Margin : Sales -variable cost                                             = 16488-11047.30 = $ 5,440.70 Req B.Contribution margin ratio = total contribution/ sales *100                                                        ( 5440.70/ 16488) *100 = 33% Total fixed cost: Occupancy          $4,025 Gen & Selling (2434*55%) $1,338.70 Other expense $ 209 Total fixed cost $ 5,572.70 Req C. Sales increase by $ 500 million Revised sales (16488+500 ) = $16988 CM ratio =33% Total contribution earned = sales*CM ratio = 16988 *33% = $ 5,606.04 Net Operating income = Total contribution earned- Total fixed cost                                                   (5606.04- 5572.70) = $ 33.34 mllions Increase in Net operating income(33.34+132) = $165.34 Req D: Sales increase by $ 500 million Revised sales (16488+500 ) = $16988 CM ratio =33% Total contribution earned = sales*CM ratio = 16988 *33% = $ 5,606.04 Net Operating income = Total contribution earned- Total fixed cost                                                   (5606.04- 5572.70) = $ 33.34 mllions Req E. Total Fixed cost   $ 5572.70 CM ratio 33% Break even sales in $ = Total Fixed cost / CM ratio *100                                               5572.70 /33 *100 =         $16,887

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