McDonalds sells its big Mac for 399 The cost of the raw mate

McDonald’s sells its big Mac for $3.99. The cost of the raw materials (edible and disposable) is $0.77 for the big Mac. Each franchisee owes 7% of TOTAL sales to the McDonald’s head office for rent and branding purposes. 550 million big Macs are sold in the US each year, with the breakeven point being hit at 50 million burgers. Assuming that all other costs are classified as annual overhead costs (wages, electricity etc.), how much of this cost is amortized over each big Mac that is sold in a year?

Solution

Selling price 3.99 $ Total sales 550.00 Million Breakeven sales 50 Raw material cost 0.77 $ Rent and branding 0.28 7% of selling price Contribution 2.94 Selling price-Raw material - Rent and branding Fixed costs 147.04 Contribution*Breakeven sales Fixed costs ammortised per unit of Big Mac 0.27 (Fixed costs/Total sales)