Question

E11-10 Contribution margir Undo (Ctrl+Z) lion margin ratio For a recent year, McDonald's (MCD) company-owned restaurants had the following sales and expenses (in millions): $16,488 Sales Food and packaging Payroll Occupancy (rent, depreciation, etc.) General, selling, and admin. expenses Other expense Total expenses Operating income (loss) $5,552 4,400 4,025 2,434 209 (16,620) $ (132) Assume that the variable costs consist of food and packaging, payroll, and 45% of the general, selling, and administrative expenses.

a. What is McDonald’s contribution margin? Round to the nearest million.
b. What is McDonald’s contribution margin ratio? Round to one decimal place.
c. How much would operating income increase if same-store sales increased by $500 million for the coming year, with no change in the contribution margin ratio or fixed costs?
d. What would have been the operating income or loss for the recent year if sales had been $500 million more?
e. To achieve break even for the recent year, by how much would sales need to increase?

Answer 1

Variable cost = 5552+4400+(2434*45%) = 11047.30

Fixed cost = 4025+(2434*55%)+209 = 5572.70

a) Contribution margin = 16488-11047.30 = 5441

b) Contribution margin ratio = 5441/16488 = 33%

c) Net operating income increase by = 500*33% = $165

d) Net income (loss) = -132+165 = 33

e) Break even sales = 5572.70/.33 = 16887

Sales increase by = 399