Premium Essay

Bentton

In: Business and Management

Submitted By mexicnfmle
Words 901
Pages 4
ANSWER KEY

Research and Application 5-34

1. The income statement on page 50 is prepared using an absorption format. The income statement on page 33 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; nonetheless, Benetton has chosen to include it in the annual report. 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 overwhelming majority of the costs are variable, as one would expect for a merchandising company, thus 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):

|(in millions; figures are rounded) |2003 |2004 |
|Total fixed costs |€464

Similar Documents