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    MA - Real 1

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    Grace Simon
    Coca-Cola's primary business is producing and selling syrup to bottlers. The bottlers then sell finished bottles and cans of Coca-Cola to consumers. Coca-Cola's gross margin declined from 62% to 61% due to higher costs for variable inputs like sweeteners and packaging. Marketing expenditures increased to support sales growth. Coca-Cola measures sales volume in gallons of syrup shipped and unit cases of finished product sold.

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    MA - Real 1

    Uploaded by

    Grace Simon
    55 views2 pages
    Coca-Cola's primary business is producing and selling syrup to bottlers. The bottlers then sell finished bottles and cans of Coca-Cola to consumers. Coca-Cola's gross margin declined from 62% to 61% due to higher costs for variable inputs like sweeteners and packaging. Marketing expenditures increased to support sales growth. Coca-Cola measures sales volume in gallons of syrup shipped and unit cases of finished product sold.

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    Coca-Cola's primary business is producing and selling syrup to bottlers. The bottlers then sell finished bottles and cans of Coca-Cola to consumers. Coca-Cola's gross margin declined from 62% to 61% due to higher costs for variable inputs like sweeteners and packaging. Marketing expenditures increased to support sales growth. Coca-Cola measures sales volume in gallons of syrup shipped and unit cases of finished product sold.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    55 views2 pages

    MA - Real 1

    Uploaded by

    Grace Simon
    Coca-Cola's primary business is producing and selling syrup to bottlers. The bottlers then sell finished bottles and cans of Coca-Cola to consumers. Coca-Cola's gross margin declined from 62% to 61% due to higher costs for variable inputs like sweeteners and packaging. Marketing expenditures increased to support sales growth. Coca-Cola measures sales volume in gallons of syrup shipped and unit cases of finished product sold.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 2

    Real-World Focus

    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 then
    sell the finished bottles and cans of Coca-Cola to the consumer.
     
    In the annual report of Coca-Cola, the information shown as follows:
     
    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).
     
    Instructions:
    Answer the following questions.
    (a) Are sweeteners and packaging a variable cost or 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?
    Sweeteners and packaging are variable costs because Variable costs are functions of a
    company's production volume.   Variable costs increase or decrease depending on a company's
    production or sales volume—they rise as production increases and fall as production decreases.
    The impact on the contribution margin of an increase in the per unit cost of sweeteners or
    packaging reduces the contribution margin which will cause the break-even point to increase and will
    make the company lose possible profits due to the increase in the per unit of sweeteners or packaging.
    The implications for profitability are when the company is gaining profits without excluding the
    costs/ expenses in their income statement.

    (b) In your opinion, are marketing expenditures a fixed cost, variable cost, or mixed cost to The Coca-
    Cola Company? Give justification for your answer.
     The Coca-Cola Company’s marketing expenditure in my opinion is a mixed cost. Marketing expense is
    categorized as a fixed cost since Coca-Cola company allocates money that they plan to spend over a
    particular period and will aim to spend the monthly or annual marketing budget. At the same time, there
    are some elements of marketing expense that can be considered variable. For example, the sales
    commission is directly correlated to the volume of sales during a specific period. Coca-Cola’s marketing
    budget is getting higher also due to the company’s growth.

    (c) 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?
    Gallon shipments of concentrates and syrups, and unit cases of finished products (bottles and cans of
    Coke sold by bottlers) are the two volume measures mentioned for measuring volume. Coca-Cola
    employs a variety of metrics since various goods necessitate different approaches. Ingredients such as
    syrup and concentrates must be purchased in large quantities rather than in units because they are less
    expensive. The company's final product should be sold in units in order to generate sales and profit.

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