Question

Contribution Margin and Contribution Margin Ratio For a recent year, McDugal's company-owned restaurants had the following sales and expenses (in millions): $32,500 Sales Food and packaging Payroll Occupancy (rent, depreciation, etc.) General, selling, and admin. expenses Other expense Total expenses Operating income (loss) $7,925 8,600 10,975 5,000 650 (33,150) $(650) 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? 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. How much would operating income increase if same-store sales increased by $2,000 million for the coming year, with no change in the contribution margin ratio or fixed costs? million d. What would have been the operating income or loss for the recent year if sales had been $2,000 million more? million e. To achieve break even for the recent year, by how much would sales need to increase? Enter your anwer in million rounded to the nearest whole number. million

Answer 1

Answers

• [a]

A	Sales		$32,500
	Variable Costs:
B	Food and packaging & Payroll	$16,525
C = 5000 x 40%	General Selling & admin expense	$2,000
D = B+C	Total Variable cost		$18,525
E = A - D	Contribution margin		$13,975 ANSWER

• [b]

A	Contribution margin	$13,975
B	Sales	$32,500
C = (A/B) x 100	CM ratio	43.0% ANSWER

• [c]

A	Increase in Sales	$2,000
B	CM Ratio	43.00%
C = A x B	Income from Operation would increase by	$860	Answer

• [d]

A	Current Sale's operating income	($650)
B	Income from Operation would increase by	$860
C = A+B	If sales would have been $ 2000 million more, income from Operation would be	$210	Answer

• [e]

A	Total Cost	$33,150
B	Total Variable cost	$18,525
C = A - B	Total Fixed Cost	$14,625
D	CM ratio	43%
E = C/D	Break even sales revenue	$34,012
F	Current sales	$32,500
G = E - F	Sales to be increased by	$1,512	Answer