Answer:
a. The Company's contribution margin is $10,476 millions
b. The Company's contribution margin ratio is 27%
c. The Income from operations will increase $621 millions
Explanation:
In order to calculate Wicker Company's contribution margin we have to use the following formula:
contribution margin=Sales- Variable costs
Sales=$38,800 millions
Variable costs=Food and packaging+Payroll+40%General, selling, and administrative expenses
Hence, Variable costs=$16,284+$9,800+40%($5,600)=$28,324 millions
a. Therefore, contribution margin=$38,800-$28,324=$10,476 millions
In order to calculate the contribution margin ratio we would have to use the following formula:
contribution margin ratio=<u>contribution margin</u> × 100
Sales
contribution margin ratio=<u>$10,476 </u> × 100
$38,800 millions
b. contribution margin ratio=27%
In order to calculate how much would income from operations increase if same-store sales increased by $2,300 million for the coming year, with no change in the contribution margin ratio or fixed costs, we have to make the followinf calculation:
$2,300 million×0.27=$621 millions
c. Income from operations will increase $621 millions
