Question: Gross Margin and Contribution Margin Eastman Kodak Company is a provider of imaging technology products and services to the photographic, graphic communications, and health-care markets. A condensed 2011 income statement follows (in millions):
Assume that $1,400 million of the cost of goods sold is a fixed cost representing depreciation and other production costs that do not change with the volume of production. In addition, $1,000 million of the other operating expenses is fixed.
1. Compute the total contribution margin for 2011 and the contribution margin percentage. Explain why the contribution margin differs from the gross margin.
2. Suppose that sales for Eastman Kodak are predicted to increase by 10% and that the cost behavior is expected to continue. Compute the predicted operating income (loss).
3. What assumptions were necessary to compute the predicted operating income in requirement 2?