Discussion-cost behaviour and cost-volume-profit analysis

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Reference no: EM1347532

Eastman Kodak Company manufactures and sells cameras, film, and other imaging products. A condensed 2000 income statement follows (in millions):

Sales $13,994
Cost of goods sold 8,019

Gross Margin 5,975
Other operating expenses 3,761

Operating income $2,214

Suppose that $1,800 million of the cost of goods sold is fixed cost representing depreciation and other production costs that don't change with volume of production. In addition, $3,000 million of other operating expenses is fixed.

Please complete the following:

1. Calculate the total contribution margin for 2000 and contribution margin percentage. Describe why the contribution margin differs from the gross margin.

2. Assume that sales for Eastman Kodak were predicted to increase by 10% in 2001 and that the cost behavior was expected to continue in 2001 as it did in 2000. Compute the predicted operating income for 2001. By what percentage did this predicted 2001 operating income exceed the 2000 operating income?

3. What assumptions were necessary to compute the predicted 2001 operating income in requirement 2?

Reference no: EM1347532

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