chapter 19

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	$982,700		327,000
February	1,095,600		366,000
March	774,300		237,000
April	1,050,400		354,000
May	881,000		285,000
June	1,129,500		385,000

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	$

Contribution Margin and Contribution Margin Ratio

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

Sales	$35,100
Food and packaging	$15,385
Payroll	8,900
Occupancy (rent, depreciation, etc.)	4,665
General, selling, and administrative expenses	5,100
	$34,050
Income from operations	$1,050

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 income from operations increase if same-store sales increased by $2,100 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the closest million. $ million