Sales $16,233
Food and packaging $ 5,300
Payroll 4,121
Occupancy (rent, depreciation, etc.) 3,638
General, selling, and administrative expenses 2,334
$15,393
Income from operations $ 840
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 million.
b. What is McDonald’s contribution margin ratio? Round to one decimal place.
c. How much would income from operations increase if same-store sales increased by $811 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the closest million.
Answer:
a. Sales (in millions)…………………………………………………………………… $16,233
Variable costs (in millions):
Food and packaging……………………………………………………………… $ 5,300
Payroll……………………………………………………………………………… 4,121
General, selling, and administrative expenses (40% × $2,334)…………… 934
Total variable costs…………………………………………………………… $10,355
Contribution margin (in millions)………………………………………………… $ 5,878
b. Contribution Margin Ratio = Sales – Variable Costs
Sales
Contribution Margin Ratio = $5,878 million
$16,233 million
= 36.2%
c. Same-store sales increase (in millions)…………………………………… $811 million
Contribution margin ratio (in millions) [from part (b)]…………………… × 36.2%
Increase in income from operations (in millions)……………………… $294 million