Question

Contribution Margin and Contribution Margin Ratio

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

Sales by company operated restaurants		$12,719
Food and paper	$4,034
Payroll and employee benefits	3,529
Occupancy and other expenses	2,848
Selling, general, and administrative expenses	2,231
Other operating income	(1,163)
Net operating expenses		(11,479)
Operating income (loss)		$1,240

Assume that the variable costs consist of food and paper, payroll and employee benefits, and 35% of the selling, general, and administrative expenses.

a. What is McDonald's contribution margin? Enter your answer in million, rounded to the nearest million.
$ million

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

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 $250 million for the coming year, with no change in the contribution margin ratio or fixed costs?
$ million

d. What would have been the operating income or loss for the recent year if sales had been $250 million more?
$ million

Answer 1