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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 : $19,700

Food and Packaging: $7630

Payroll: $5000

Occupancy: $3580

General expenses: $2,900

Total: $19,110

Income from operations: $590


a. What is Wicker Company's contribution margin? Round to the nearest million. (Give answer in millions of dollars.)Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses.

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 $1,200 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the closest million.

Solutions

Expert Solution

Total Variable cost fixed cost
Sales   19700
Food package 7630 7630
Payroll 5000 5000
Occupancy (rent, depreciation etc.) 3580 3580
General , selling and administrative expenses 2900 1160 1740
$19,110 $13,790 $5,240
Income from operation $590
Ans a) contribution margin = Sales - variable cost $5,910
19700-13,790
Ans b) Contribution margin ratio = 5,910/19,700 30.00%
Ans c) Increase in income
Incremental sales * Contribution margin ratio $360.00
1200*30%

ekkarill92 answered 2 years ago
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