For a recent year, McDonalds had the following sales and expenses (in millions): Sales . . .

Question:

For a recent year, McDonald’s had the following sales and expenses (in millions):

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,352

Food and packaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,204

Payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,040

Occupancy (rent, depreciation, etc.) . . . . . . . . . . . . . . . . . . 1,022

General, selling, and administrative expenses . . . . . . . . . . 2,220

$12,486

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,866

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.

b. What is McDonald’s contribution margin ratio? Round to two decimal places.

c. How much would income from operations increase if same-store sales increased by $450 million for the coming year, with no change in the contribution margin ratio or fixed costs?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...