Introduction to Coca-Cola Company
Coca Cola Company is recognized as one of the leading marketer, distributor and producer of non-alcoholic beverage, concentrates, and syrups in the US. The company has a strong brand portfolio and name which enabled the company to remain position one in the listing of top 100 brands in the year 2007. Currently, the company enjoys synergies and massive growth through acquisitions and mergers with other companies in the same industry. The company’s linkage of its strategic goals with its vision and mission statement has enabled the company to gain a competitive advantage against other companies.
Budgeting Process
Coca Cola’s budgeting system serves as an analytical tool and a benchmark against which the company uses to eliminate inefficiencies, evaluate organizational performance and establish as strong control cycle. Coca Cola’s budgeting system involves identifying, collecting, summarizing and communicating non-financial and financial information regarding the company’s operations in a given period. In the identifying phase, various departments such as marketing, research, production and management identify activities consistent with the company’s strategy. Activities identified are then screened and assessed by estimating they effect on the company’s cash flow as well as the firm’s value. After the gathering and evaluation, Coca Cola Company implements a top down and bottom up budgets depending on the nature of activities identifies. The company mostly uses top down budgets since the senior executives must authorize every transaction undertaken by the company.
Management Accounting System
Coca Cola uses different types of management accounting systems. The mostly used accounting systems include inventory management systems, cost accounting systems, price optimizing systems and job-costing systems. The company collects information through research and development, and the information collected is usually used to create informative reports as a way of storage. The information is then prepared into detailed informative reports in order to facilitate for comparisons of actual expenses and budgeted expenses. The information is then disseminated through heads of the relevant departments so as to ensure that every department and employee stays focused on the corporate strategy of the company. For instance, the company uses a cost accounting system to determine the profitable price of soda through the analysis of the direct and indirect costs.
Costing process
Coca Cola Company uses process and job-order costing methods. The company uses process costing while analyzing the net cost of manufacturing especially when filling bottles with soda. The cost per unit of filling bottles is simply regarded as the net cost incurred divided by the number of bottles filled. In addition, the company uses job order costing while tracking all costs incurred on individual product basis. Therefore, Coca Cola Company uses both job-order costing and process costing as part of its costing technique.
Capital decision making
The decision to implement a project is usually authorized by the chief executive officer especially where the capital outlay is large. Coca Cola Company has a policy of using internal rate of return (IRR) and net present value methods while evaluating the project to undertake. The company accepts projects with positive net present value while at the same time rejects projects with negative present value. On the other hand, the company accepts projects whose IRR is greater than the cost of capital. The company funds the projects at the initial stages and then after sometime evaluates the profitability of the project by using payback method.
Capital acquisition and structure
The company acquires most of its funding from the investors. The company uses the pecking order theory whereby it finds it cheaper to use the retained earnings as a way of funding itself. The company uses debt to fund part of the capital investment through the company uses more of the investor’s fund. The company has a debt ratio of 30 percent, which implies that the company has a medium gearing ratio. The company’s capital structure is optimal, and any investment that the company wishes to implement venture into is possible.
Conclusion
Through the analysis, it is evident that Coca Cola Company uses prudent management and financial strategies to gain a competitive advantage against the competitors. The company has applied the analyzed techniques over the years, and it is worth mentioning that none of the strategies of techniques has ever failed the company. Therefore, it is imperative for organizations to use such prudent measures.
References
Banerjee, B., 2006. Cost Accounting Theory And Practice 12Th Ed.. New Delhi: PHI Learning Pvt. Ltd..
Coca Cola Company, 2011. UNITED STATES SECURITIES AND EXCHANGE COMMISSION- FORM 10-K. Coca Cola Company Annual Report, pp. 1-166.
Debarshi, B., 2011. Management Accounting. Delhi: Pearson Education India.
Drury, C., 2007. Management and Cost Accounting. 7, illustrated ed. London: Cengage Learning EMEA.
Ehrhardt, M. C. & Brigham, E. F., 2010. Financial Management Theory and Practice. 13 ed. London: Cengage Learning.
Houston, J. F. & Brigham, E. F., 2009. Fundamentals of Financial Management. 12 ed. London: Cengage Learning.
