assignment 1

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QUESTION: 1
A- Are sweeteners and packaging a variable costs 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?
The sweeteners and packaging it is direct materials to Coca-Cola production , the varying value in cost behavior depending on the production volume and the level of business activity, therefore it is variable costs( vary in total , fixed in per unit) , when the fixed costs (constant in total , vary in per unit) . according to formulas:
Contribution margin = total revenues –variable costs
When an increase in the per unit cost of sweeteners and packaging (variable cost) the contribution margin decrease assume the total revenue constant and net profit decrease .
Then reached to break – even point.
Break – even point = contribution margin equal total fixed costs, no profit or loss
On the basis of this relationship
Break – even point in units = fixed costs ÷ contribution margin per units
The relationship between the BEP and contribution margin is inversely proportional,
Mean if the contribution margin decrease, the break –even point increase.
(Hoggett, 2012, p: 467- 471).

An example of budget shows the relationship between the contribution margin and profit.
Assume the sales per unit = $1
Variable cost per unit = $0.25
Variable cost per unit after increase = $ 0.40

Old New (after increase per unit cost of sweeteners & packaging )
Sales revenue(100 units) $ 100
25 $ 100
40
Variable costs
Contribution margin 75
40 60
40
Fixed costs
Net income $ 35 $ 20 in the example, reached to conclusion the value of the contribution margin at least ...

... middle of paper ...

...ch represent the amount of finished product the bottling system sells to retail customers.in this unit's case volume more accurately measures the underlying strength of business system because it measures trends at the retail level and is less impacted by inventory management practices at the wholesale level. (University of Illinois at Chicago, 2000).
The reason Coca-Cola use two different measurements to identify the cause that contributes to the decrease of gross margin and know impairment points in the production or marketing, and how the managers obviate it . On the other hand the company adopted this approach:
- Reduce the budget manufacturing.
- Increase the spread of its branches worldwide through the bottler's license.
- providing a large number of job opportunities around the world, and so contributed to reduce the rates of unemployment for many countries.

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