1. The VIMTO Beverages Company manufactures a line of sweet beverages for the Gulf market. VIMTOs primary line of business is the making and selling of syrup to bottlers. In the annual report of VIMTO, the information shown below was provided.

THE VIMTO LLC 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 Companys volume growth.

Instructions

Answer the following questions. (5 marks each. Total 15 marks)

1. Are sweeteners and packaging a variable cost or a fixed cost?
2. 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?
3. In your opinion, are VIMTOs marketing expenditures a fixed cost, variable cost, or mixed cost? Give justification for your answer.