Contribution Margin and Contribution Margin Ratio

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

Sales	$36,000
Food and packaging	$14,740
Payroll	9,100
Occupancy (rent, depreciation, etc.)	5,880
General, selling, and administrative expenses	5,200
	$34,920
Income from operations	$1,080

Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses.

1a. What is McDonald's contribution margin? Round to the nearest million. (Give answer in millions of dollars.) $fill in the blank 1 million

1b. What is McDonald's contribution margin ratio? fill in the blank 2 %

1c. How much would income from operations increase if same-store sales increased by $2,200 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the closest million. $fill in the blank 3 million

Operating Leverage

Beck Inc. and Bryant Inc. have the following operating data:

	Beck Inc.		Bryant Inc.
Sales	$370,700		$1,188,000
Variable costs	148,700		712,800
Contribution margin	$222,000		$475,200
Fixed costs	148,000		277,200
Income from operations	$74,000		$198,000

1a. Compute the operating leverage for Beck Inc. and Bryant Inc. If required, round to one decimal place.

1b. How much would income from operations increase for each company if the sales of each increased by 20%? If required, round answers to nearest whole number.

1c. The difference in the increasesdecreases of income from operations is due to the difference in the operating leverages. Beck Inc.'s higherlower operating leverage means that its fixed costs are a largersmaller percentage of contribution margin than are Bryant Inc.'s.