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Bennetton Case Study

In: Business and Management

Submitted By smart123
Words 844
Pages 4
Research and Application 6-34, page 278 1. From looking at the income statement presented on page 50, is prepared using an absorption format. Then on page 33 it is prepared using a contribution format. The annual report says that the contribution format income statement shown on page 33 is used for internal reporting purposes; but, Benetton has chosen to include it in the annual report anyway. The contribution format income statement treats all cost of sales as variable costs. The selling, general and administrative expenses shown on the absorption income statement have been broken down into variable and fixed components in the contribution format income statement.

It appears the Distribution and Transport expenses and the Sales Commissions have been reclassified as variable selling costs on the contribution format income statement. The sum of these two expenses according to the absorption income statement on page 50 is €103,561 and €114,309 in 2004 and 2003, respectively. If these numbers are rounded to the nearest thousand, they agree with the variable selling costs shown in the contribution format income statements on page 33.

2. The cost of sales is included in the computation of contribution margin because the Benetton Group primarily designs, markets, and sells apparel. The manufacturing of the products is outsourced to various suppliers. While Benetton’s cost of sales may include some fixed costs, the majority of the costs are variable, as one would expect for a merchandising company, therefore the cost of sales is included in the calculation of contribution margin.

3. The break-even computations are as follows (see page 33 of annual report):

| |2004 |2003 |
|Total fixed costs |€436…...

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