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).

Answer the following questions.

(1) Are sweeteners and packaging referenced in the excerpt a variable cost or a fixed cost? What is the effect on the contribution margin of an increase in the per unit cost of sweeteners or packaging? What are the implications for profitability?

(b) In your opinion, are marketing expenditures a fixed cost, variable cost, or mixed cost to The Coca-Cola Company? Justify your answer.

(c) Which of the two measures cited for measuring volume represents an activity base? Why might Coca-Cola use two different measures?