2- 57 Gross Margin and Contribution Margin Eastman Kodak Company is a provider of imaging technology products and services to the photo-graphic, graphic communications, and health- care markets. A condensed 2008 income statement follows ( in millions):

Sales $ 9,416

Cost of goods sold 7,247

Gross margin 2,169

Other operating expenses 2,896

Loss from continuing operations $ ( 727)

Assume that $ 1,400 million of the cost of goods sold is a fixed cost representing depreciation and other production costs that do not change with the volume of production. In addition, $ 2,000 million of the other operating expenses is fixed.

1. Compute the total contribution margin for 2008 and the contribution margin percentage. Explain why the contribution margin differs from the gross margin.

2. Suppose that sales for Eastman Kodak were predicted to increase by 10% in 2009 and that the cost behavior was expected to continue in 2009 as it did in 2008. Compute the predicted operating income

(loss) for 2009.

3. What assumptions were necessary to compute the predicted 2009 operating income in requirement 2?