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 $14,800 Food and packaging $(6,372) Payroll (3,700) Occupancy (rent, depreciation, etc.) (2,088) General, selling, and administrative (2,200) expenses $(14,360) Operating income $440 Assume that the variable costs consists 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 $900 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the closest million. million Break Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $190 per unit during the current year. Its income statement is as follows: Sales Cost of goods sold $190,000,000 (100,000,000) $90,000,000 Gross profit Expenses: Selling expenses $16,000,000 Administrative expenses 16,000,000 Total expenses (32,000,000) Operating income $58,000,000 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 70% 30% Selling expenses 75% 25% Administrative 50% 50% expenses Management is considering a plant expansion program for the following year that will permit an increase of $13,300,000 in yearly sales. The expansion will increase fixed costs by $5,000,000 but will not affect the relationship between sales and variable costs. Required: 1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs 90,000,000 Total foxed costs 90X Required: 1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs 90,000,000 Total fixed costs 90 x 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost 90 Unit contribution margin 100 3. Compute the break-even sales (units) for the current year. units 4. Compute the break-even sales (units) under the proposed program for the following year. units 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $58,000,000 of operating income that was earned in the current year. units I 6. Determine the maximum operating income possible with the expanded plant. 7. If the proposal is accepted and sales remain at the current level, what will the operating income or loss be for the following year? Income ogl 8. Based on the data given, would you recommend accepting the proposal? a. In favor of the proposal because of the reduction in break even point. b. In favor of the proposal because of the possibility of increasing income from operations. c. In favor of the proposal because of the increase in break-even point. d. Reject the proposal because if future sales remain at the current level, the income from operations will increase. e. Reject the proposal because the sales necessary to maintain the current income from operations would be below the current year sales. ha Contribution Margin Ratio a. Young Company budgets sales of $910,000, fixed costs of $65,500, and variable costs of $291,200. What is the contribution margin ratio for Young Company? 68 % b. If the contribution margin ratio for Martinez Company is 32%, sales were $884,000, and fixed costs were $198,020, what was the operating income? $ 477,360 x
