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.) 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 $800 million for the coming year, with no change in the contribution margin ratio or fixed costs?

Explanation / Answer

Fixed cost

Rent, Depreciation = 3537

General selling , and administrative = 60 % of 2100, =1260

Total fixed = 3537 + 1260,=4797

Variable cost's

Food & Packaging = 4443

Payroll = 3600

Genearl selling & administrative - 40 % of 2100,= 840

Total Variable = 4443+3600+840,= 8883

Sale = 14100

a) Contribution margin = Sales - Variable cost

= 14100 - 8883,= 5217 million

b) Contribution margin % = Contribution / sales

= 5217 / 14100,= 37 %

c) income from operation will increase by 37 % x 800 million,= 296 million

i.e = contribution margin on additional sales .

Fixed cost willl have no effect on this sale as it has already been recovered earlier on 14100 sale

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