Contribution Margin and Contribution Margin Ratio For a recent year, McDonald's company-owned restaurants had the following sales and expenses (in millions): Sales $12,718.9 Food and packaging $ 4,033.5 Payroll 3,528.5 Occupancy (rent, depreciation, etc.) 2,847.6 General, selling, and administrative expenses 2,231.3 12,640.9 Income from operations $ 78.0 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). $ b. What is McDonald's contribution margin ratio? Round your answer to one decimal place. % c. How much would income from operations increase if same-store sales increased by $500 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). $
Contribution Margin and Contribution Margin Ratio
For a recent year, McDonald's company-owned restaurants had the following sales and expenses (in millions):
| Sales | $12,718.9 |
| Food and packaging | $ 4,033.5 |
| Payroll | 3,528.5 |
| Occupancy (rent, |
2,847.6 |
| General, selling, and administrative expenses | 2,231.3 |
| 12,640.9 |
| Income from operations | $ 78.0 |
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).
$
b. What is McDonald's contribution margin ratio? Round your answer to one decimal place.
%
c. How much would income from operations increase if same-store sales increased by $500 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).
$
Incorrect answers:(a)4264.38 (b)33.53 (c)167.6
Sales revenue: It is the revenue earned by a business on selling the goods or providing services to the general public.
Variable costs: These costs are incurred in conjunction to the volume of goods produced or sold. It indicates that these costs are incurred only when the goods are produced or sold.
Contribution margin: It is the surplus achieved by a business after meeting all the variable costs from the sales revenue. It is nothing but the excess of sales revenue over the variable costs incurred for such sale.
Fixed costs: These are costs which are incurred irrespective of the production or sale activities. It indicates that these costs are only incurred once and will not change with the change in the volume of goods produced or sold. These costs are constant in total but changes per unit. If the number of units produced is increasing, the fixed cost per unit will decrease and vice-versa.
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