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 1 year ago

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