Question

For a recent year, Wicker Company-owned restaurants had the following sales and expenses (in millions):Sales $38,800Food and packaging $16,284Payroll 9,800Occupancy (rent, depreciation, etc.) 5,956General, selling, and administrative expenses 5,600$37,640Income from operations $1,160Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses.a. What is Wicker Company's contribution margin? Round to the nearest million. (Give answer in millions of dollars.)$ millionb. 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 $2,300 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the closest million.$ million

Answer 1

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=contribution margin × 100

                                                    Sales

contribution margin ratio=$10,476 × 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