27th Edition
WARREN + 5 others
ISBN: 9781337272094




27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Contribution margin and contribution margin ratio

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

Sales $18,169.3
Food and packaging $6,129.7
Payroll 4,756.0
Occupancy (rent, depreciation, etc.) 4,402.6
General, selling, and administrative expenses 2,487.9
Income from operations $ 393.1

Assume that the variable costs consist of food and packaging; payroll; and 40% of the general, selling, and administrative expenses.

  1. a. What is McDonald’s contribution margin? Round to the nearest tenth of a million (one decimal place).
  2. b.  What is McDonald’s contribution margin ratio? Round to one decimal place.
  3. 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).


To determine

Contribution Margin: It is defined as the difference between the sales and the variable cost.

Contribution Margin ratio: It is a ratio that measures the contribution margin generated by the company from the sales to make it avialable for paying the fixed cost and generate a profit. It is expressed as percentage of margin available from each dollar sales to pay fixed expenses and to provide profit. It is also called as profit-volume ratio. The formula to calculate the contribution margin ratio is as follows:

ContributionMarginRatio =ContributionMarginSales×100

To determine: contribution margin for M Company.


Determine the contribution margin for M Company.

Sales =$18,169.3 million

Variable cost =$$11,880.9 million (1)


Working notes:

Determine the total variable cost.



To determine
contribution margin ratio for M Company.


To determine
the increase in income from operations.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Define depreciation as it relates to a van you bought for your business.

College Accounting (Book Only): A Career Approach

What is an opportunity cost? How is this concept used in TVM analysis, and where is it shown on a time line? Is...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

DISCOUNTED PAYBACK Refer to Problem 11-1. What is the projects discounted payback?

Fundamentals of Financial Management (MindTap Course List)