Question

For a recent year, McDonald's (MCD) company-owned restaurants had the following sales and expenses (in millions):  JUST NEED E. I got the rest right

Sales		$16,488
Food and packaging	$5,552
Payroll	4,400
Occupancy (rent, depreciation, etc.)	4,025
General, selling, and admin. expenses	2,434
Other expense	209
Total expenses		(16,620)
Operating income (loss)		$(132)

Assume that the variable costs consist of food and packaging, payroll, and 45% of the general, selling, and administrative expenses. JUST NEED E. I got the rest right

a. What is McDonald's contribution margin? Enter your answer in million, rounded to one decimal place.

5,440.70 million

b. What is McDonald's contribution margin ratio? Round your percentage answer to one decimal place.
33 %

c. Use the rounded contribution margin ratio value to answer the following question: how much would operating income increase if same-store sales increased by $500 million for the coming year, with no change in the contribution margin ratio or fixed costs? 165 million

d. What would have been the operating income or loss for the recent year if sales had been $500 million more?
$ 33 million

e. Use the rounded contribution margin ratio value to answer the following question: To achieve break even for the recent year, by how much would sales need to increase?
$ _____million

Answer 1

• All working forms part of the answer
• You have only asked for Requirement ‘E’

A	Food & Packaging	$              5,552.00
B	Payroll	$              4,400.00
C	45% of General expense	$              1,095.30
D = A+B+C	Total variable cost	$            11,047.30
E [given]	Total Expenses	$            16,620.00
F = E - D	Total Fixed Cost	$              5,572.70
G [calculated by you in Req 'b']	CM ratio	33%
H = F/G	Break Even Sales required	$            16,886.97
I [given]	Current Sales	$            16,488.00
J = H - I	ANSWER: Sales need to increase by	$                  398.97

• Answer = $ 398.97 million