1.0 How do the formats of the income statements shown on pages 33 and 50 of Benetton’s annual report differ from one another (disregard everything beneath the line titled “income from operations”)? Which expenses shown on page 50 appear to have been reclassified as variable selling costs on page 33?

A. The income statement shown on page 33 exclusively shows the contribution margin. This format is used for internal company analysis. Benetton has chosen to show it as a part of annual report. The variable costs (Distribution and Transport costs, Sales commission) are clubbed together. This format is called the contribution format.
The income statement on page 50 shows the variable costs and fixed costs more clearly. It has broken down the various costs. This format is called the absorption format.
B. As highlighted earlier, the difference in the expenses shown on page 50 and 33 is that – page 50 clearly breaks down the variable expenses (Distribution and Transport costs, Sales commission), whereas in page 33 they are clubbed.
If we sum up the Distribution and Transport costs, Sales commission costs for 2003 and 2004– it sums to 114 and 104 respectively. This is shown as variable cost on the format used on page 33. 2.0 Why do you think cost of sales is included in the computation of contribution margin on page 33?

For a Merchandising company, the cost of sales is considered to be a variable cost. Benetton primarily designs and sells apparels. The manufacturing is completely outsourced by Benetton to various suppliers. Hence, it is apt to consider cost of sales as a variable