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):

Sales $14,400
Food and packaging $4,920
Payroll 3,600
Occupancy (rent, depreciation, etc.) 3,350
General, selling, and administrative expenses 2,100
$13,970
Income from operations $430

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 $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

Explanation / Answer

a. Contribution margin = revenue - variable costs.

sales = 14,400. variable costs: food and packaging = 4,920. payroll = 3,600. 40% of SG&A = 40% of 2,100 = 840

Total variable costs = 4920+3600+840 = $9,360

contribution margin = 14,400 - 9,360 = $5,040 (millions)

b. contribution margin ratio = contribution margin/sales = 5,040/14,400 = 35.00%

c. if sales increased by $900 million, it would become: 14,400+900 = 15,300

expenses will be same at 13,970. income from operations = sales - (fixed+variable expenses)

= 15,300 - 13,970 = $1,330 (in millions)

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