Cost Accounting of Coke produced by Coca-Cola Company

This project discusses the product costing of Coke produced by Coca-Cola Company. It includes gross margin, cost of the product, competitors product, value chain concept, research, and opportunities.

Running head: COST ACCOUNTING
Cost Accounting of Coke produced by Coca-Cola Company
Name of the student
Name of the university
Author Note:

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Table of Contents
Introduction......................................................................................................................................4
Place of Manufacturing....................................................................................................................4
Gross Margin and Cost of the Product............................................................................................5
Table No 1: Table of Gross Profit Margin of Coke.....................................................................6
Figure 1: Gross profit margin of Coke........................................................................................6
Table 2: Calculation of the Cost Price of Coke...........................................................................7
Competitors Product........................................................................................................................7
Table 3: Pepsi Gross profit Margin.............................................................................................8
Comparison between Two different Competitors............................................................................8
Table 4: Comparison of Earnings of Coke and Pepsi..................................................................9
Table 5: Comparison of Sales of Coke and Pepsi......................................................................10
Table 6: Comparison of Dividend Increase of Coca-Cola and Pepsi........................................11
Table 7: Comparison of Dividend Growth over the year of Coke and Pepsi............................12
Value Chain Concept.....................................................................................................................12
Figure 2: Coca Cola or Coke the Product..................................................................................13
Research.........................................................................................................................................14
Table No 8: Sugar Price Estimates............................................................................................14
Opportunities.................................................................................................................................15

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Figure 3: Price Maintenance of Coke........................................................................................16
Conclusion.....................................................................................................................................16
References......................................................................................................................................17

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Introduction
The following project is based on comprehensive product costing. The product selected is
one of the most popular drinks of the world which is Coke produced by Coca-Cola Company.
The company has its origin in the United States. The following project aims to discuss the most
effective and efficient ways to find out the elements related to the product costing of the
following. The company was formed as a medicine company in the 19th century by John
Pemberton. However after some time a businessman named Asa Griggs Candler bought the
company and changed its fortunes from a mere medicine producing company to its present status
of a dominating soft drink company of the world. The main features of this particular project are
provided below. They are categorized as follows;
Place of Manufacturing
Coca Cola is one of the largest manufacturers of cold drinks and beverages across the
world. The particular product has its manufacturing plant all across the globe. The main reason
behind this is the wide acceptability of Coke across the globe. The company has mainly its
bottling units all across the world. The company has least number of plants in its place of origin
which is in North America. It has its production and bottling plants in USA and Canada. In the
South Americas the company has its plants located at almost all of the countries. This includes
the likes of Argentina, Bahamas, Brazil, Chile, El-Salvador, Mexico and many more as such. In
Europe it has similar presence in all over the continent with different kind of factories in Ireland,
Italy, France, Sweden, Switzerland, Romania, Spain and in many other countries. IN Africa too
the company has its plants in almost all the countries. Last but not the least it has a strong
presence in Asia with huge number of units in India, Pakistan, China, West Asia and many other

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countries. Thus in a short and brief statement its business can be easily identified with the
number of companies it has under its fold and the number of workers working under the
management of the company (Sekaran & Bougie, 2016).
Gross Margin and Cost of the Product
Gross Profit margin is the financial metric that determines the financial health of the
company. It also determines the business model that the company follows by revealing the
proportion of the money that is left over from the revenues after accounting for the cost of the
different types of goods sold by the company (Andrews & Shimp 2017). However the following
project aims to determine the profit margin of the selected product. According to the annual
reports of Coca Cola Company, the organization has managed to improve the revenue
sequentially to $8927 million by an increase of 17.06% faster than the increase in the gross profit
of the company which is close to 16.1% that sums up to $5,675 million. The following activity
led to the contraction in the gross profit margin to 63.57%. The quarterly gross profit margin
remained around the average rate of 62.07%.
Coca Cola
Gross profit
Margin
June 29, 2018
2nd Quarter
March 30,
2018
1st Quarter
December 31,
2017
4th quarter
September 29
2017
3rd Quarter
June 30 2017
2nd Quarter
Revenue
Change
-7.99% -16.36% -20.16% -14.62% -15.92%
Gross Profit
Change
-6.09% -12.79% -14.11% -12.6% -14.5%
Gross Profit
margin
63.57% 64.1% 64.2% 62.6% 62.29%
Gross Profit
margin Total
Ranking
#480 #1665 #1759 #1846 #1790
Revenue
Change
17.06% 1.52% -17.25% -6.43% 6.4%
Gross Profit
Change
16.1% 1.35% -15.13% -5.96% 7.81%

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Table No 1: Table of Gross Profit Margin of Coke
Source: (Hansen, 2016)
Figure 1: Gross profit margin of Coke
Source: (Eccles & Serafeim, 2015)
The gross profit margin of the company stands at 63.57% which is quite impressive.
However the management of the company in different geographical locations of the globe
decides the price of the products depending upon a number of different factors. This includes the
likes of;
 Product demand of the public Price that gives the maximum revenue Price should be determined according to the competitors prices

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 Target market idea should be kept to determine the exact price
CALCULATION OF THE COST PRICE OF THE PRODUCT
Particulars Amount ($)
Selling price of Coke 1.00
Gross Profit Margin 0.37
Cost of the product 0.62
Table 2: Calculation of the Cost Price of Coke
Source: (As created by the Author)
Competitors Product
The competitive product in this case has been selected as Pepsi. PepsiCo is another large
American multinational soft drinks company headquartered in New York, USA. Pepsi is the
largest competitor of Coke till date. With a net annual income of around US $4.908 billion the
product Pepsi of the company provides a tough competition to its counterpart in the market. The
gross profit margin of the following company is as follows;
Pepsi Inc., profitability ratios
(quarterly data)
Jun 16,
2018
Mar
24,
2018
Dec 30,
2017
Sep 9,
2017
Jun 17,
2017
Mar
25,
2017
Dec 31,
2016
Return on Sales
Gross profit margin 54.42% 54.47% 54.69% 54.89% 54.87% 55.00% 55.08%
Operating profit margin 16.18% 16.21% 16.54% 16.21% 16.00% 16.03% 15.58%
Net profit margin 7.14% 7.62% 7.65% 10.97% 10.77% 10.66% 10.08%

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Return on Investment
Return on equity (ROE) 45.47% 44.86% 44.60% 52.41% 54.95% 58.05% 57.04%
Return on assets (ROA) 5.84% 5.96% 6.09% 8.88% 8.86% 9.00% 8.54%
Table 3: Pepsi Gross profit Margin
Source: (Hansen, 2016)
It can be seen from the following table that the gross profit margin of Pepsi has been
around 54.42%. Comparing the profit margin with that of the profit margin of the Coca-Cola the
difference can be easily spotted. According to, Andrews & Shimp (2017) the main reason behind
this is the failure of the management of Pepsi to be incapable of reducing the cost of the different
products produced by the company. The increase in the price of products will thus lead to loss of
customers which in turn will lead to the decreasing revenue from sales. According to, Menon &
Yao (2017) the following activity will thus lead to the failure of the company in the long run and
decrease the profit margins.
Comparison between Two different Competitors
As mentioned earlier Coke and Pepsi are two of the largest and the leading soft drinks
and beverages companies. These Products are two of the premier global brands in the globe and
thus competition between these two different brands is quite natural. These brands can be
compared in a number of different parameters based on their performances, sales, marketing and
promotional aspects in the market.
1. Earnings

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Pepsi owns a varied range of market than that of Coke. The presence of a varied market
under Pepsi’s belt is a clear advantage to them. However statistics suggest somewhat different.
Coca-Cola has been able to drive more earnings in the bottom line. Though the earnings of Coke
have been showing a downward trend for quite some years, the product manages to stay way
forward than its competitor because of its advance and superior margins (Eccles & Serafeim,
2015).
Coke
Pepsi
Table 4: Comparison of Earnings of Coke and Pepsi
Source: (Hansen, 2016)
2. Sales

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The comparison of the sales of the two mentioned companies will show that Coke has
been able to generate more income but Pepsi has an advantage in the sales as because they
are able to generate more top line revenues for a long time.
Coke
Pepsi
Table 5: Comparison of Sales of Coke and Pepsi
Source: (Hansen, 2016)
3. Dividend Increase
The management of both the companies has been able to meet the demands of the
shareholders for a long time now. They have committed themselves to continuously pay and

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grow their quarterly dividends that help to meet the goals and financial returns for their
shareholders.
Coke
Pepsi
Table 6: Comparison of Dividend Increase of Coca-Cola and Pepsi
Source: (Hansen, 2016)
4. Dividend Growth
Both the companies have been able to grow their dividend in the market. Pepsi has been able
to turn the table over Coke in this regard as because the former company has been able to earn a

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dividend of around 10%. On the other hand, Coke as a product has been able to earn a dividend
of 8.5% over the year.
Coke
Pepsi
Table 7: Comparison of Dividend Growth over the year of Coke and Pepsi
Source: (Hansen, 2016)
Value Chain Concept
Coke is one of the most recognizable brands globally. The brand is known for its strong
brand image, fair price policy and having a successful value chain policy. A value chain includes
all the different activities starting from obtaining of the different raw materials for the production
of the different brands. The different activities under the value chain analysis of Coca-Cola are as
follows;

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 Inbound Logistics- Coke has been able to manage a large supply chain that consists of a
large number of different farmers as well as suppliers (Steenkamp, 2017). The company
treats all the suppliers as their own business partners. Such a friendly gesture helps the
organization to establish a strong bond with the company which paves the way for the
packaging and manufacturing of the different goods and services for the following
industry. The cost for the inbound
 Operations- The operational functions of the mentioned product and its product depend
on the concentrated developments and the administrative functions of the headquarters.
Coca-Cola has managed to turn the business of Coke into a global business that operates
on a local scale in each and every community. The marketing and promotional operations
of the company are spread across a number of different channels.
 Marketing and Sales- The marketing and sales department of the organization has been
successful in presenting the product in a great way and also making it a globally
recognized brand. The logo of Coke is one of the most recognized brands.

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Figure 2: Coca Cola or Coke the Product
Source: (coca-colacompany.com, 2018)
Research
The most important ingredient of Coke is Sugar or sucrose that is used to bring the sweet
taste in the soft drink. The increase in the price of sugar will lead to the increase in the soft drink
over the time period. The sudden change in the market price of sugar will have a sharp effect on
the price of the mentioned product. Research estimates that increase in the price of the SSB’s
generates a small yet significant reduction in the purchase. As for now Sugar is estimated to
trade at 11.00 Cents/LB by the end of the quarter, according to Trading Economics global macro
models and analysts expectations. It can be estimated that sugar will be traded at 12.40 in the
next year.

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Table No 8: Sugar Price Estimates
Source: (Varsamis et al. 2017)
Opportunities
The increase in the price of the sugar will lead to the increase in the price of the soft
drink. The following activity must be faced with effective counter measures to ensure the
stability of the prices. Some of the effective measures will include;
a. Material Cost- The cost of materials that are bought by the company must be decreased
by means of buying less. Thoughtful sourcing will involve striking a fine balance
between price and quality.
b. Labor Cost- According to, Gillespie & Riddle (2015) the labor cost should be reduced by
either reducing the number of labors or conducting a slight decrease in the salary of the
labors.
c. Reduction in miscellaneous cost- The reduction in the other miscellaneous cost like
electricity, promotions, advertising and other items will also help to reduce costs.

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Figure 3: Price Maintenance of Coke
Source: (Varsamis et al. 2017)
Conclusion
The comprehensive calculations and discussion of the different elements of costing of
Coke is a great source of knowledge for future researches on the same subject. The most
important element of the following research is the inclusion of the statistical and theoretical
comparisons on the basis of the different factors like profit margin, sales and dividend has helped
to make the report more compact and strong in nature. Last but not the least the discussion of one
of the factors leading to the rise of Coke and the ways by which the company controls such a
price rise has enriched the contains of the report.

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References
(2018). Coca-Cola Journey Homepage. [online] The Coca-Cola Company. Available at:
https://www.coca-colacompany.com/ [Accessed 6 Aug. 2018].
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marketing communications. Nelson Education.
Eccles, R. G., & Serafeim, G. (2015). Corporate and integrated reporting. Corporate
Stewardship: Achieving Sustainable Effectiveness, 156.
Eccles, R. G., & Serafeim, G. (2015). Corporate and integrated reporting. Corporate
Stewardship: Achieving Sustainable Effectiveness, 156.
Gattorna, J. (2017). Strategic supply chain management Creating shareholder value by aligning
supply chain strategy with business strategy. In Strategic Supply Chain Alignment(pp. 32-
52). Routledge.
Gillespie, K., & Riddle, L. (2015). Global marketing. Routledge.

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Gituma, M. M. (2017). Effects of Marketing Mix on Sales Performance: A Case of Unga Feeds
Limited (Doctoral dissertation, United States International University-Africa).
Menon, A. R., & Yao, D. A. (2017). Elevating repositioning costs: Strategy dynamics and
competitive interactions. Strategic Management Journal, 38(10), 1953-1963.
Pan, Q. H., He, X., Skouri, K., Chen, S. C., & Teng, J. T. (2018). An inventory replenishment
system with two inventory-based substitutable products. International Journal of
Production Economics.
Steenkamp, J. B. (2017). Customer Propositions for Global Brands. In Global Brand
Strategy (pp. 45-73). Palgrave Macmillan, London.
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Standardization. In Global Brand Strategy (pp. 75-109). Palgrave Macmillan, London.
Tugendhaft, A., Manyema, M., Veerman, L. J., Chola, L., Labadarios, D., & Hofman, K. J.
(2016). Cost of inaction on sugar-sweetened beverage consumption: implications for
obesity in South Africa. Public health nutrition, 19(13), 2296-2304.
Van Doorn, G., & Miloyan, B. (2017). The Pepsi Paradox: A Review. Food Quality and
Preference.
Varsamis, P., Larsen, R. N., Grace, M., Owen, N., Dunstan, D. W., & Kingwell, B. A. (2017). A
comparison of sugar composition in popular soft drinks in Australia, Europe and the
USA. Journal of Nutrition & Intermediary Metabolism, 8, 104.Fuller, G. W. (2016). New
food product development: from concept to marketplace. CRC Press.

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Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting.
John Wiley & Sons.