Question

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

Sales	$17,800
Food and packaging	$5,852
Payroll	4,500
Occupancy (rent, depreciation, etc.)	4,318
General, selling, and administrative expenses	2,600
	$17,270
Income from operations	$530

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? Round to the nearest million. (Give answer in millions of dollars.)
$ million

b. What is Wicker Company's contribution margin ratio? Round to one decimal place.
%

c. How much would income from operations increase if same-store sales increased by $1,100 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the closest million.
$ million

Break-Even Analysis

Rotelco is one of the largest digital wireless service providers in the United States. In a recent year, it had approximately 100 direct subscribers (accounts) that generated revenue of $56,500. Costs and expenses for the year were as follows:

Cost of revenue	$23,200
Selling, general, and administrative expenses	18,100
Depreciation	6,200

Assume that 70% of the cost of revenue and 35% of the selling, general, and administrative expenses are variable to the number of direct subscribers (accounts).

a. What is Rotelco's break-even number of accounts, using the data and assumptions above? Round to the nearest whole number.
accounts

b. How much revenue per account would be sufficient for Rotelco to break even if the number of accounts remained constant? Round to the nearest dollar.
$ per account

Answer 1

1) variable cost = 5852+4500+(2600*40%) = 11392 million

Contribution margin = 17800-11392 = 6408 million

1b) Contribution margin ratio = 6408/17800 = 36%

1c) Income from operating increase by (1100*36%) = $396 million

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