Reference no: EM132572413

The 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 sell the finished bottles and cans of Coca-Cola to the consumer.

In the annual report to Coca-Cola, the information shown below 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 increase [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) units cases of furnished product (bottles and cans of Coke sold by bottlers).

Answer the following questions

Question 1: Are the sweeteners and the packaging a variable cost of a fixed cost? What is the impact on the contribution margin of an increase in the per unit cost of sweeteners or packaging? What are the implications for profitability?

Question 2: In your opinion, are marketing expenditures a fixed cost, variable cost, or mixed cost to The Coca-Cola Company? Give justification for your answer.

Question 3: Which of the two measures cited for measuring volume represents the activity index as defined in this chapter? Why might Coca-Cola use two different measures?