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Hormel Foods Corporation

Student’s Name

Institutional Affiliation

Course Name and Number

Professor’s Name

Assignment Due Date

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Hormel Foods Corporation

Hormel Foods company is a known diversified producer of food products. The company

emphasizes quality, nutrition, convenience, and ethnic foods. Over the years, the company has

successfully evolved, and it has been in business for over a century. Apart from the SPAM

brand, it also produces other products such as Farm Fresh, Chi-Chi's, Dubuque, Dinty Moore,

and many others (Hormel foods Corp., n.d.).

Hormel’s Contribution Margin and Contribution margin ration

a) Identify which specific variables should be included in the calculation.

Contribution margin (CM) is the amount products contribute to cover fixed costs (Gallo, 2017).

Contribution margin ratio is the expression of CM in the percentage of prices (Drury, 2013).

Therefore, the variables included in the calculation are total net sales revenue and total variable

cost.

a) Illustrate your explanation by calculating the contribution margin and contribution

margin percent using hypothetical values.

Hormel’s total net sales food products in 2020 were about 9.5 billion US dollars and the total

variable costs which included direct labor, materials and variable selling were 1 million US

dollars Therefore;

CM = total sales – variable costs.

$9,500,000,000–$1,000,000 =$9, 499,000,000

Contribution margin ratio = CM /sales

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$9, 499,000,000/$9,500,000,000 = 99.989473684%

b) Explain what your calculated results tell you about the company’s sales and cost
structure.

From the calculation results above, it is easy to tell Hormel’s sales as well as its cost structure.

The higher the company's CM, the more money the corporation has to use to cover the fixed

costs and generate profit at the same time. In many cases, a high contribution margin is

considered a better option.

The contribution margin ratio obtained (99.989473684%) could be considered high; however, it

all depends on the company's fixed costs. Also, it shows that every dollar of the total revenue of

a product sold makes, 99.989473684% is the CM. the company can decide to either the

percentage obtained to pay the fixed costs or generate profit.

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References

Drury, C. M. (2013). Management and cost accounting. Springer.

Gallo, A. (2017). Contribution margin: What it is, how to calculate it, and why you need

it. Harvard Business Review, 1-3. https://hbr.org/2017/10/contribution-margin-what-it-is-

how-to-calculate-it-and-why-you-need-it

Hormel foods Corp. (n.d.). Encyclopedia.com | Retrieved April 17,2021, from

https://www.encyclopedia.com/economics/economics-magazines/hormel- foods-corp