Accounting - The Coca-Cola Company

Running head: ACCOUNTING
Accounting
Name of the Student:
Name of the University:
Author’s Note:

1ACCOUNTING
Table of Contents
Solution to exercise 8-27............................................................................................................2
Solution to exercise 17-26..........................................................................................................4
References and bibliography......................................................................................................5

2ACCOUNTING
Solution to exercise 8-27
The Coca-Cola Company is a multinational company based on America
manufacturing and marketing non-alcoholic beverages and syrup. The company is
headquartered at Atlanta, Georgia and incorporated at Delaware, United States. It operates in
a franchises distribution system since 1889 after its production of the beverage drink Coca-
Cola in the year 1886. It has been dominating the market of soft drinks throughout the 20th
century and it has been viewed as the “best worldwide brand” by Interbrand’s Investigation in
2015. During the initial days, while deciding the price of Coke the firm used a cost-based
estimating framework. After composing the first product they decided the expenses and
accordingly set the cost of the coke and persuaded the customers. It is that time from which
the company started using market-entrance strategy for evaluating the cost. Presently, Coca-
Cola is facing many rivals in the industry like Pepsi and to fight with their rivals their
essential methodology is market price and they set their prices accordingly neither too high
nor too low (Coca-colacompany.com, 2020).
The company is using alternate pricing strategies for Coke over the years and the strategies
are (Arab, 2018)-
 Psychological Pricing Strategy- During the year 2009, this pricing strategy has been
utilized by them for their original product, coke.
 Promotional Pricing Strategy- They also uses the strategy of promotional pricing as
often as possible.
 Segmented Pricing Strategy- Based on different products and packages, the Coca-
Cola Company also uses segmented pricing strategy.
 Discriminatory Pricing- When the product is sold through different channels they
follow discriminatory pricing strategies.

3ACCOUNTING
Pros and cones of using the absorption costing system for the Coca Cola Company have
been discussed as follows.
Pros:
The main advantage absorption costing system is that, it has compliance with GAAP
and is required to report to the Internal Revenue Services (IRS). The absorption costing
system considers all the costs of production instead of only direct costs along with the fixed
costs of operation. Absorption costing also helps in providing a clear picture of the
profitability if even all the products are not sold during the same accounting period. This is
important during the time of anticipated and seasonal increase in sales volume.
Cons:
Absorption costing makes the level profit to appear better than what it is in actual
during a given accounting period. The absorption costing system does not provide a good
analysis of the cost and does not help to improve the efficiency of the operations.
Pros and cones of using the variable costing system for the Coca Cola Company have
been discussed as follows.
Pros:
Variable costing helps in better understanding of the fixed costs’ effect on the net
profit as total fixed cost is reflected in income statement. The methods of controlling costs
like standard costing system and flexible budget are connected with variable costing system.
The net operating income which is produced by variable costing is normally close to the cash
flow which is beneficial for the businesses having issues in cash flow.
Cons:

4ACCOUNTING
Financial statements which are prepared using the variable costing system do not
conform to GAAP. In various countries the tax laws require the need of absorption costing. It
is normally used to evaluate the efficiency of the top executives of the company.
Solution to exercise 17-26
Using direct method:
Particulars Maintenance Computing Etching Finishing
Overhead before allocation $ 48,000.00 $ 2,50,000.00 $ 2,00,000.00 $ 3,20,000.00
Allocation of overhead of Maintenance department
(1:8) $ -48,000.00 $ 5,333.33 $ 47,999.11
Allocation of overhead of Computing department (7:1) $ -2,50,000.00 $ 2,18,750.00 $ 31,250.00
Total overhead after allocation $ - $ - $ 4,24,083.33 $ 3,99,249.11
Number of employees 20 80
Labour hour per employee per year 2,000 2,000
Total direct labour hours $ 40,000.00 $ 1,60,000.00
Overhead rate per direct labour hour $ 10.60 $ 2.50
Using step down method:
Particulars Maintenance Computing Etching Finishing
Overhead before allocation $ 48,000.00 $ 2,50,000.00 $ 2,00,000.00 $ 3,20,000.00
Allocation of overhead of Computing department
(2:7:1) $ 50,000.00 $ -2,50,000.00 $ 1,75,000.00 $ 25,000.00
Sub total $ 98,000.00 $ - $ 3,75,000.00 $ 3,45,000.00
Allocation of overhead of Maintenance department (1:8) $ -98,000.00 $ - $ 10,888.89 $ 87,111.11
Total overhead after allocation $ - $ - $ 3,85,888.89 $ 4,32,111.11
Number of employees 20 80
Labour hour per employee per year 2,000 2,000
Total direct labour hours $ 40,000.00 $ 1,60,000.00
Overhead rate per direct labour hour $ 9.65 $ 2.70

5ACCOUNTING
References and bibliography
Arab, N., (2018). Relationship between dimensions of Brand Equity and 4Ps of Marketing
Mix-Place, Product, Promotion, & Price: Coca Cola-Consumer Based Qualitative
Survey.
Coca-colacompany.com., (2020). The Coca-Cola Company - More than a Beverage
Company. [online] Available at: https://www.coca-colacompany.com/company
[Accessed 24 Mar. 2020].
Eckstein, D., Goellner, M., Blome, C. and Henke, M., (2015). The performance impact of
supply chain agility and supply chain adaptability: the moderating effect of product
complexity. International Journal of Production Research, 53(10), pp.3028-3046.
Pearce, D.W., (2016). Cost-benefit analysis. Macmillan International Higher Education.