Question

Contribution Margin and Contribution Margin Ratio

For a recent year, Wicker Company-owned restaurants had the following sales and expenses (in millions):

Sales	$20,300
Food and packaging	$7,910
Payroll	5,100
Occupancy (rent, depreciation, etc.)	3,680
General, selling, and administrative expenses	3,000
	$19,690
Income from operations	$610

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 $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.
$ million

2.

High-Low Method for a Service Company

Boston Railroad decided to use the high-low method and operating data from the past six months to estimate the fixed and variable components of transportation costs. The activity base used by Boston Railroad is a measure of railroad operating activity, termed “gross-ton miles,” which is the total number of tons multiplied by the miles moved.

	Transportation Costs		Gross-Ton Miles
January	$1,089,200		281,000
February	1,214,400		314,000
March	858,300		203,000
April	1,164,400		304,000
May	976,600		244,000
June	1,252,000		330,000

Determine the variable cost per gross-ton mile and the fixed cost.

Variable cost (Round to two decimal places.)	$ per gross-ton mile
Total fixed cost	$

3.

Sales Mix and Break-Even Sales

Dragon Sports Inc. manufactures and sells two products, baseball bats and baseball gloves. The fixed costs are $444,000, and the sales mix is 60% bats and 40% gloves. The unit selling price and the unit variable cost for each product are as follows:

Products	Unit Selling Price		Unit Variable Cost
Bats	$60		$50
Gloves	150		90

a. Compute the break-even sales (units) for both products combined.
units

b. How many units of each product, baseball bats and baseball gloves, would be sold at break-even point?

Baseball bats	units
Baseball gloves	units

Answer 1

1a) Variable cost = 7910+5100+3000*40% = 14210

Contribution margin = Sales-Variable cost = 20300-14210 = 6090 Million

1b) Contribution margin ratio = 6090/20300 = 30%

1c) Net income increase by = 1200*30% = 360 Million

2a) Variable cost per mile = (1252000-858300)/(330000-203000) = 3.10

Fixed cost = 1252000-(330000*3.1) = 229000

3a) Weighted average contribution margin per unit = (10*60%+60*40%) = 30

Break even unit = 444000/30 = 14800 Units

Baseball bats = 14800*60% = 8880 Units

Baseball gloves = 14800*40% = 5920 Units