Contribution Margin and Contribution Margin Ratio
For a recent year, Wicker Company-owned restaurants had the following sales and expenses (in millions):
Sales | $29,500 |
Food and packaging | $10,055 |
Payroll | 7,400 |
Occupancy (rent, depreciation, etc.) | 6,865 |
General, selling, and administrative expenses | 4,300 |
$28,620 | |
Income from operations | $880 |
Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses.
a. What is Wicker Company's contribution
margin? Round to the nearest million. (Give answer in millions of
dollars.)
$ million
b. What is Wicker Company's contribution margin
ratio? Round to one decimal place.
%
c. How much would income from operations
increase if same-store sales increased by $1,800 million for the
coming year, with no change in the contribution margin ratio or
fixed costs? Round your answer to the closest million.
$ million
Variable cost = 10055+7400+(4300*40%) = 19175
a) contribution margin = Sales-Variable cost = 29500-19175 = 10325
b) Contribution margin ratio = 10325/29500 = 35%
c) Income from operation increase by = (1800*35%) = 630 million
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