Contribution Margin and Contribution Margin Ratio For a recent year, Wicker Comp

Question

Contribution Margin and Contribution Margin Ratio For a recent year, Wicker Company, a business consisting of company-owned restaurants, had the foilowing sales and expenses (in millions): Sales Food and packaging Payroll Occupancy (rent, depreciation, etc.) General, selling, and administrative expenses $26,800 $9,328 6,800 S,972 3,900 $26,000 800 Income from operations 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? million b. What is Wicker Company's contribution margin ratio? e. 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? million

Explanation / Answer

a) calculate company's contribution margin :

b) Contribution margin ratio = 9112*100/26800 = 34%

c) If sales increase $1600 million then income from operation :

New sales = (26800+1600) = 28400

Income from operation increase (1344-800) = 544 million

Sales 26800 Less: Foods and packaging (9328) Less : Payroll (6800) Less: General,selling and administrative expenses (3900*40%) (1560) Contribution margin 9112

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