For a recent year, Wicker Company-owned restaurants had the following sales and

Question

For a recent year, Wicker Company-owned restaurants had the following sales and expenses (in millions): 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 $1,500 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the closest million. $ million

Explanation / Answer

a.

Variable expenses = Food and packaging + payroll + 40% of General, Selling and administrative expenses

Variable expenses = $8,350 + $6,200 + (40%*$3,600) = $15,990

Contribution margin = Sales – variable expenses = $24,600 - $15,990 = $8,610 million

b.

Contribution margin ratio = Contribution margin/Sales = $8,610 / $24,600 = 35%

c.

With fixed costs remaining same, the income would increase by the amount of contribution margin on the incremental sales.

Income would increase by = $1500 * 35% = $525 millionn

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