Question

# 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 \$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

(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.

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