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

For a recent year, McDonald's (MCD) company-owned restaurants had the following sales and expenses (in millions): Sales \$15,295.0 Food and packaging \$(4,896.9) Payroll (4,134.2) Occupancy (rent, depreciation, etc.) (3,667.7) General, selling, and administrative expenses (2,384.5) \$(15,083.3) Operating income \$211.7 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 tenth of a million (one decimal place). \$ x million b. What is McDonald's contribution margin ratio? Round to one decimal place. X % C. How much would operating income increase if same-store sales increased by \$800 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the nearest tenth of a million (one decimal place). x million

#### Homework Answers

ReportAnswer #1

Variable Food and Packaging = \$4,896.9

Variable Payroll = \$4,134.2

Variable General, Selling and Administrative expenses = 40% * \$2,384.5

= \$953.8

Fixed General, Selling and Administrative expenses = 60% * \$2,384.5

= \$1,430.7

Fixed Occupancy = \$3,667.7

Total fixed costs = \$1,430.7 + \$3,667.7

= \$5,098.4

Total variable cost = Variable Food and Packaging + Variable Payroll + Variable General, Selling and Administrative expenses

= \$4,896.9 + \$4,134.2 + \$953.8

= \$9,984.9

a.

McDonald's Contribution margin = Sales - Variable costs

= \$15,295.0 - \$9,984.9

= \$5,310.1

b.

McDonald's Contribution margin ratio = Contribution margin / Sales

= \$5,310.1 / \$15,295.0

= 34.7%

c.

Increase in Operating income = \$800 * 34.7%

= \$277.6

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