Contribution Margin and Contribution Margin Ratio For a recent year, McDonald’s (MCD) company-owned restaurants had the...

Contribution Margin and Contribution Margin Ratio

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

 Sales \$38,300 Food and packaging \$(10,274) Payroll (9,700) Occupancy (rent, depreciation, etc.) (11,576) General, selling, and administrative expenses (5,600) \$(37,150) Operating income \$1,150

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 operating income increase if same-store sales increased by \$2,300 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the closest million.
\$ million

Variable costs = Food and packing + Payroll + (40%* general selling and administrative expenses)

= 10274+9700+(40%*5600) = 22214

 Contribution margin = Sales - Variable costs = 38300 - 22214 = 16086 Contribution margin ratio = Contribution margin/Sales = 16086/38300 = 42% Increase in operating income = 2300 million * 42% = 966 million
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