Eastman Kodak Company is a provider of imaging technology products and services to the photographic,
Graphic communications, and health-care markets. A condensed 2005 income statement follows
(in millions):
Sales $14,268
Costs of goods sold 10,617
Gross margin 3,651
Other operating expenses 4,417
Loss from continuing operations $ (766)
Assume that $2,400 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, $3,000 million
Of the other operating expenses is fixed.
1. Compute the total contribution margin for 2005 and the contribution margin percentage. Explain
Why the contribution margin differs from the gross margin.
2. Suppose that sales for Eastman Kodak were predicted to increase by 10% in 2006 and that the cost
Behavior was expected to continue in 2006 as it did in 2005. Compute the predicted operating
Income (loss) for 2006.
3. What assumptions were necessary to compute the predicted 2006 operating income in requirement
2?