Question

Contribution Margin and Contribution Margin Ratio For a recent year, Wicker Company-owned restaurants had the following sales and expenses (in millions): Sales $41,100 Food and packaging $15,148 Payroll 10,400 Occupancy (rent, depreciation, etc.) 8,322 General, selling, and administrative expenses 6,000 $39,870 Income from operations $1,230 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 $2,500 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

(all amounts in $ millions)

a. calculation of contribution margin

sales	41,100
less: variable costs
food and packaging	(15,148)
payroll	(10,400)
general, selling and administrative expenses (6000*40%)	(2,400)
contribution margin	13,152

b.contribution margin ratio = contribution margin / sales *100

=>13,152/41,100 *100

=>32%.

c.income from operations if same store sales increase by $2,500.

sales (41,100+2500)	43,600
contribution margin (43,600 * 32%)	13,952
less; fixed costs
occupancy	(8,322)
general selling and administrative expense (6000*60%)	(3,600)
net income (contribution margin - fixed costs) (13,952-8322-3600)	$2,030

increase in net income = $2,030- 1,230

=>$800.