Question

Contribution Margin and Contribution Margin Ratio

For a recent year, McDonald’s (MCD) company-owned restaurants had the following sales and expenses (in millions):

Sales	$35,500
Food and packaging	$(10,575)
Payroll	(9,000)
Occupancy (rent, depreciation, etc.)	(9,665)
General, selling, and administrative expenses	(5,200)
	$(34,440)
Operating income	$1,060

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. (Give answer in millions of dollars.)
$ million

b. What is McDonald's contribution margin ratio?
%

c. How much would operating income increase if same-store sales increased by $2,100 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the closest million.
$ million

Answer 1

a)	Sales	35,500
	Less: Variable cost
	Food and packaging	(10,575)
	Payroll	(9,000)
	General, selling, and administrative expenses	(2,080)
	Contribution Margin	13,845
b)	Contribution margin ratio = Contribution margin / sales *100
	=13845 / 35500*100
	39.00%
c)	Increase in income would be = 39% * 2100
	819