Question
In: Accounting
Contribution Margin and Contribution Margin Ratio For a recent year, Wicker Company-owned restaurants had the following...
Contribution Margin and Contribution Margin Ratio
For a recent year, Wicker Company-owned restaurants had the following sales and expenses (in millions):
| Sales | $14,700 |
| Food and packaging | $6,044 |
| Payroll | 3,700 |
| Occupancy (rent, depreciation, etc.) | 2,416 |
| General, selling, and administrative expenses | 2,100 |
| $14,260 | |
| Income from operations | $440 |
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
Solutions
Expert Solution
Answer:
(Answers are in Millions)
Total Variable expenses = $6,044 + $3,700 + 40% of $2,100 = $9,744 + $840 = $10,584
Total Fixed expenses = $2,416 + 60% of $2,100 = $2,416 + $1,260 = $3,676
a. Contribution Margin
Contribution Margin = Sales - Variable cost = $14,700 - $10,584 = $4,116
b. Contribution Margin Ratio
Contribution Margin Ratio = (Contribution Margin / Sales) * 100
= ($4,116 / $14,700) * 100
= 0.28 or 28%
= 28%
c. Increase in Income from operations if Sales increase by $900 million
Revised Sales = $14,700 + $900 = $15,600
Revised Contribution margin = Sales * Contribution margin ratio = $15,600 * 28% = $4,368
Revised Income from operations = Contribution margin - Fixed cost = $4,368 - $3,676 = $692
So, the increase in Income from operations if Sales are increased by $900 million
= $692 - $440
= $252
ekkarill92 answered 2 years agoRelated Solutions
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