ASSAIGNMENT NO 1

QUESTION NO 1:

(A). Are sweeteners and packaging a variable cost or a fixed cost? What 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 considered to be a fixed cost for the bottling companies only (not for the Coca-Cola company). That’s mainly due to their main function, which is; the sweetening and packaging of the coke cans and bottles. Here the bottlers will only receive the active constituents (gallon shipments) from the Coca-Cola Company, which contain syrup and concentrates, after that the sweetening and packaging process for every cans (or bottles) can started directly. The costs of sweetening and packaging procedure are believed to be mandatory for the bottlers in regardless of the total quantity of sales they accomplished. Fixed costs are the costs associated with the product that have to be paid regardless of the volume you sell, no matter how much you sell or don't sell, you have to pay your fixed costs (http://www.bizfinance.about.com, 2014).

When any increase occurred in per unit cost of fixed sweetening and packaging materials, directly that will lead to a raise in per unit cost of the finished product (coke cane or bottle). That could strongly affect the company by reduction of the total number of products sold and may lead to losing the market competition against other less expensive products, so on the contribution margin will decline immediately (even if the variable costs remain constant). An increase in fixed costs adds to overall cost. This would reduce how much the company earns from operations if the contribution margin is low. Such a small contribution ratio means that a company sh...

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...d packaging process will be done by the bottlers only. This could result in increasing the company chances to gain more profits, because they can get more money with wholesaling of concentrates and syrups gallons firstly and then through any bottles or cans contains their trade name sold around the world. Definitely that’s will made them compete very strongly in the global markets.

- this was considered to be a very helpful way to spread the company trade name and mark (Coca Cola) more widely around the world. That will lead to open new markets for them to sell their products, so that will reinforce their reputation in the international market.

- New opportunities shall be created to the people around the world, whom don’t have any jobs, to get a position inside the bottling companies, which will contribute to eliminate the problem of unemployment in these countries.