In: Accounting
1. For a recent year, Wicker Company-owned restaurants had the following sales and expenses (in millions):
Sales$15,300
Food and packaging$4,706
Payroll3,900
Occupancy (rent, depreciation, etc.)4,034
General, selling, and administrative expenses2,200 $14,840
Income from operations$460
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 $900 million for the
coming year, with no change in the contribution margin ratio or
fixed costs? Round your answer to the closest million.
$ ______________________ million
2. Break-Even Sales
Currently, the unit selling price of a product is $410, the unit variable cost is $340, and the total fixed costs are $1,344,000. A proposal is being evaluated to increase the unit selling price to $460.
a. Compute the current break-even sales (units). _______________units
b. Compute the anticipated break-even sales (units), assuming that the unit selling price is increased to the proposed $460, and all costs remain constant. __________________ units
1.a.Contribution margin is calvulated as:
Contribution margin=$5,814 million
b.Contribution margin ratio=(Contribution/Sales)*100
Contribution margin ratio=($5,814/$15,300)*100
Contribution margin ratio=38%
c.Increase in income from operations
Incremental income from operation=$342 million
2.a.Break even sales(units)=Fixed costs/Contribution margin
Contribution margin=Sales-Variable costs
Contribution margin=$410-$340
Contribution margin=$70
Break even sales(units)=$1,344,000/$70
Break even sales(units)=19,200 units
b.New Break even is computed as:
New contribution margin=($460-$340)
New contribution margin=$120
New Break even=Fixed cost/Contribution margin
New Break even=$1,344,000/$120
New Break even=11,200 units