Chapter 6, Problem 10E

Contribution margin and contribution margin ratio

For a recent year, McDonald’s (MCD) 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.

1. a. What is McDonald’s contribution margin? Round to the nearest tenth of a million (one decimal place).
2. b. What is McDonald’s contribution margin ratio? Round to one decimal place.
3. c. How much would operating income increase if same-store sales increased by $800 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the nearest tenth of a million (one decimal place).