Question

In: Accounting

1. For a recent year, Wicker Company-owned restaurants had the following sales and expenses (in millions):...

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

Solutions

Expert Solution

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

ekkarill92 answered 1 year ago

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