In a recent annual report, a major soft drink manufacturer and distributor announced that the gross profit margin was down 1%. (1% may not sound like much, but one percent of $37 billion is a $370 million decrease in gross profit.) The company justified the loss because of an increase in direct materials and an increase in selling expenses. The increase in selling expenses was due to higher marketing costs used to grow the business.

Answer the following questions:

1. in your opinion, are the marketing expenses in total a fixed cost, a variable cost, or a mixed cost?

2. justify your answer to number one. Why did you characterize them as fixed, variable, or mixed?

3. use some examples to justify your answer. See below for some cost options.