Financial and Managerial Accounting, 13th Edition Carl S.Warren, James M. Reeve, Jonathan E. Duchac
Contribution Margin and Contribution Margin Ratio
For a recent year, McDonald's company-owned restaurants had thefollowing sales and expenses (in millions):
Sales $18,602.5 Food and packaging $ 6,318.2 Payroll 4,710.3 Occupancy (rent, depreciation, etc.) 4,195.2 General, selling, and administrative expenses 2,445.2 17,668.9 Income from operations $ 933.6
Assume that the variable costs consist of food and packaging,payroll, and 40% of the general, selling, and administrativeexpenses.
a. What is McDonald's contribution margin?Round to the nearest tenth of a million (one decimal place).
$ million
b. What is McDonald's contribution marginratio? Round to one decimal place.
%
c. How much would income from operationsincrease if same-store sales increased by $900 million for thecoming year, with no change in the contribution margin ratio orfixed costs? Round your answer to the nearest tenth of a million(one decimal place).
$ million
2.
Break-Even Sales and Sales to Realize Income from Operations
For the current year ended March 31, Benatar Company expectsfixed costs of $1,250,000, a unit variable cost of $100, and a unitselling price of $140.
a. Compute the anticipated break-even sales(units).
units
b. Compute the sales (units) required torealize income from operations of $150,000.
units
Feedback
a. Fixed costs divided by the unit contribution margin equalsbreak-even point in units.
b. (Fixed costs + Target profit) divided by unit contributionmargin = sales units.
Learning Objective 3.
3.
Beck Inc. and Bryant Inc. have the following operating data:
Beck Inc. Bryant Inc. Sales $1,250,000 $2,000,000 Variable costs 750,000 1,250,000 Contribution margin $500,000 $750,000 Fixed costs 400,000 450,000 Income from operations $100,000 $300,000
a. Compute the operating leverage for Beck Inc.and Bryant Inc. If required, round to one decimal place.
Beck Inc. Bryant Inc.
b. How much would income from operationsincrease for each company if the sales of each increased by 20%? Ifrequired, round answers to nearest whole number.
Dollars Percentage Beck Inc. $ % Bryant Inc. $ %
c. The difference in the of income fromoperations is due to the difference in the operating leverages.Beck Inc.'s operating leverage means that its fixed costs are apercentage of contribution margin than are Bryant Inc.'s.
Financial and Managerial Accounting, 13th Edition Carl S.Warren, James M. Reeve, Jonathan E. Duchac
Contribution Margin and Contribution Margin Ratio
For a recent year, McDonald's company-owned restaurants had thefollowing sales and expenses (in millions):
| Sales | $18,602.5 |
| Food and packaging | $ 6,318.2 |
| Payroll | 4,710.3 |
| Occupancy (rent, depreciation, etc.) | 4,195.2 |
| General, selling, and administrative expenses | 2,445.2 |
| 17,668.9 | |
| Income from operations | $ 933.6 |
Assume that the variable costs consist of food and packaging,payroll, and 40% of the general, selling, and administrativeexpenses.
a. What is McDonald's contribution margin?Round to the nearest tenth of a million (one decimal place).
$ million
b. What is McDonald's contribution marginratio? Round to one decimal place.
%
c. How much would income from operationsincrease if same-store sales increased by $900 million for thecoming year, with no change in the contribution margin ratio orfixed costs? Round your answer to the nearest tenth of a million(one decimal place).
$ million
2.
Break-Even Sales and Sales to Realize Income from Operations
For the current year ended March 31, Benatar Company expectsfixed costs of $1,250,000, a unit variable cost of $100, and a unitselling price of $140.
a. Compute the anticipated break-even sales(units).
units
b. Compute the sales (units) required torealize income from operations of $150,000.
units
Feedback
a. Fixed costs divided by the unit contribution margin equalsbreak-even point in units.
b. (Fixed costs + Target profit) divided by unit contributionmargin = sales units.
Learning Objective 3.
3.
Beck Inc. and Bryant Inc. have the following operating data:
| Beck Inc. | Bryant Inc. | |||
| Sales | $1,250,000 | $2,000,000 | ||
| Variable costs | 750,000 | 1,250,000 | ||
| Contribution margin | $500,000 | $750,000 | ||
| Fixed costs | 400,000 | 450,000 | ||
| Income from operations | $100,000 | $300,000 | ||
a. Compute the operating leverage for Beck Inc.and Bryant Inc. If required, round to one decimal place.
| Beck Inc. | |
| Bryant Inc. |
b. How much would income from operationsincrease for each company if the sales of each increased by 20%? Ifrequired, round answers to nearest whole number.
| Dollars | Percentage | |
| Beck Inc. | $ | % |
| Bryant Inc. | $ | % |
c. The difference in the of income fromoperations is due to the difference in the operating leverages.Beck Inc.'s operating leverage means that its fixed costs are apercentage of contribution margin than are Bryant Inc.'s.
Related questions
1.
Contribution Margin and Contribution Margin Ratio
For a recent year, Wicker Company-owned restaurants had thefollowing sales and expenses (in millions):
| Sales | $32,100 |
| Food and packaging | $8,317 |
| Payroll | 8,100 |
| Occupancy (rent, depreciation, etc.) | 10,023 |
| General, selling, and administrative expenses | 4,700 |
| $31,140 | |
| Income from operations | $960 |
Assume that the variable costs consist of food and packaging,payroll, and 40% of the general, selling, and administrativeexpenses.
a. What is Wicker Company's contributionmargin? Round to the nearest million. (Give answer in millions ofdollars.)
$ million
b. What is Wicker Company's contribution marginratio? Round to one decimal place.
%
c. How much would income from operationsincrease if same-store sales increased by $1,900 million for thecoming year, with no change in the contribution margin ratio orfixed costs? Round your answer to the closest million.
$ million
2.
Break-Even Sales and Sales to Realize Income from Operations
For the current year ending October 31, Yentling Company expectsfixed costs of $533,200, a unit variable cost of $64, and a unitselling price of $95.
a. Compute the anticipated break-even sales(units).
units
b. Compute the sales (units) required torealize income from operations of $124,000.
units
3.
Break-Even Sales
Currently, the unit selling price of a product is $240, the unitvariable cost is $200, and the total fixed costs are $476,000. Aproposal is being evaluated to increase the unit selling price to$270.
a. Compute the current break-even sales(units).
units
b. Compute the anticipated break-even sales(units), assuming that the unit selling price is increased to theproposed $270, and all costs remain constant.
units
4.
Sales Mix and Break-Even Sales
Dragon Sports Inc. manufactures and sells two products, baseballbats and baseball gloves. The fixed costs are $836,000, and thesales mix is 30% bats and 70% gloves. The unit selling price andthe unit variable cost for each product are as follows:
| Products | Unit Selling Price | Unit Variable Cost | ||
| Bats | $70 | $50 | ||
| Gloves | 180 | 110 | ||
a. Compute the break-even sales (units) forboth products combined.
units
b. How many units of each product, baseballbats and baseball gloves, would be sold at break-even point?
| Baseball bats | units |
| Baseball gloves | units |
