Question

High-Low Method for a Service Company Continental 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 Continental 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 $946,700 261,000 February 1,055,600 292,000 March 746,000 189,000 April 1,012,000 282,000 May 848,800 227,000 June 1,088,200 307,000 Determine the variable cost per gross-ton mile and the total fixed cost. Variable cost (Round to two decimal places.) $ per gross-ton mile Total fixed cost $

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

Sales	$22,500
Food and packaging	$(7,155)
Payroll	(5,700)
Occupancy (rent, depreciation, etc.)	(5,675)
General, selling, and administrative expenses	(3,300)
	$(21,830)
Operating income	$670

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 $1,400 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

Requirement (a) - McDonald's Contribution Margin

Total Variable Costs = Food & packaging + Payroll + 40% of General, selling & admin expenses

= $7,155 Million + $5,700 Million + [$3,300 Million x 40%]

= $7,155 Million + $5,700 Million + $1,320 Million

= $14,175 Million

Therefore, the Contribution Margin = Sales – Total Variable Costs

= $22,500 Million - $14,175 Million

= $8,325 Million

Requirement (b) - McDonald's Contribution Margin Ratio

McDonald's Contribution Margin Ratio = [Contribution Margin / Sales] x 100

= [$8,325 Million / $22,500 Million] x 100

= 37.00%

Requirement (c) – Increase in Income from Operation if same-store sales increased by $1,400 Million

Increase in Income from Operation = Increase in sales x Contribution Margin Ratio

= $1,400 Million x 37.00%

= $518 Million