BYP6-3 The Coca-Cola Company hardly needs an introduction. A line taken from the
ID: 2441959 • Letter: B
Question
BYP6-3The Coca-Cola Company hardly needs an introduction. A line taken from the cover of a recent annual report says it all: If you measured time in servings of Coca-Cola, “a billion Coca-Cola’s ago was yesterday morning.” On average, every U.S. citizen drinks 363 8-ounce servings of Coca-Cola products each year. Coca-Cola’s primary line of business is the making and selling of syrup to bottlers. These bottlers then sell the finished bottles and cans of Coca-Cola to the consumer.
In the annual report of Coca-Cola, the following information was provided:
_____________________________________________________________________________
THE COCA-COLA COMPANY
Management Discussion
_____________________________________________________________________________
Our gross margin declined to 61 percent this year from 62 percent in the prior year, primarily due to costs for materials such as sweeteners and packaging.
The increases [in selling expenses] in the last two years were primarily due to higher marketing expenditures in support of our Company’s volume growth.
We measure our sales volume in two ways: (1) gallon shipments of concentrates and syrups and (2) unit cases of finished product (bottles and cans of Coke sold by bottlers).
_____________________________________________________________________________
Explanation / Answer
Sweetners and packaging are variable costs. These costs will vary with production. For ex: packaging : this will vary according to the no of bottles packed. So packaging is variabe cost. Like packaging even sweetners are also variable cost,as the quantity of production increases the consumption of sweetners will also increase. b. If unit cost of sweetner and packaging increase , automatically the variable cost will increase, so the contribution margin will be reduced. Once the contribution margin is reduced naturally the net income will also reduce.So the profitability will also reduce.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.