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 $1,000 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the closest million.
$ million

Sales $17,100 Food and packaging $4,276 Payroll 4,300 Occupancy (rent, depreciation, etc.) 5,514 General, selling, and administrative expenses 2,500 $16,590 Income from operations $510

Explanation / Answer

(a).Wicker Company’s contribution margin

Contribution Margin = Sales – Variable Expenses

Contribution Margin = $ 17100 – ( $ 4276+4300+ ($ 2500 x 0.40 ))

Contribution Margin = $ 17100 - $ 9576

Contribution Margin = $ 7524

(b). Wicker Company’s contribution margin ratio

Contribution margin ratio = Contribution / Sales * 100

Contribution margin ratio = $ 7524 / $ 17100 * 100

Contribution margin ratio = 44%

(c).Increase in income calculation

“ Income from operations would increase by $ 521”.

New sales [$ 17100+$ 1000] = $ 18100

Percentage increase of sales [$ 1000/$ 18100] = 0.05

Total variable costs for the coming year [(0.05*$ 9576)+ $ 576] = $ 10055

Fixed costs: [($ 2500*0.60)+ $5514] = $ 7014

New income from operations [$18100-$10055-$7014] = $ 1031

Change in income from operations: [$1031 - $510] = $ 521

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ALL THE BEST !!

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