Question

For a recent year, McDugal's company-owned restaurants had the following sales and expenses (in millions): Sales $23,900 Food and packaging $9,667 Payroll 6,300 Occupancy (rent, depreciation, etc.) 4,233 General, selling, and admin. expenses 3,700 Other expense 480 Total expenses (24,380) Operating income (loss) $(480) 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? Enter your answer in million, rounded to one decimal place. million b. What is McDonald's contribution margin ratio? Round your percentage answer to one decimal place. % c. How much would operating income increase if same-store sales increased by $1,400 million for the coming year, with no change in the contribution margin ratio or fixed costs? million d. What would have been the operating income or loss for the recent year if sales had been $1,400 million more? million e. To achieve break even for the recent year, by how much would sales need to increase? Enter your anwer in million rounded to the nearest whole number. million

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and format

For detailed answer refer to the supporting sheet.

1 Answer 2 3 Part 1) 4 Contribution margin sales - variable cost 5 6 23900-9667-6300-(3700*40%) 7 $6453 Thus the correct answer is $ 6453 9 10 11 Part 2) 12 Contribution margin ratio 13 contribution margin/ sales*100 146453/23900*100 15 27% 16 17 Thus the correct answer is 27% 18 19 Part 3) 20 Increase in operating income increase in sales contribution margin ratio 21 1400*27% 22$378 23 24 Thus the correct answer is $ 378 million

25 26 Part 4) 27 Operating income/(loss) for the year earlier loss +increase in operating income 28(480) +378 29 $(102) 30 31 Thus the correct answer is $(102) million 32 33 Part 5) 34 Sales need to be increase by break even sales current sales 35 (fixed cost/contribution margin ratio) 23900 36 ((4233+(3700*60%) +480)/27%)-23900 3725678 -23900 38 $1778 39 40 Thus the correct answer is $1778 million 41 42