Introduction to Costs in Management Accounting for Coca Cola

Management Accounting

MANAGEMENT ACCOUNTING 1
Table of Contents
Overview....................................................................................................................................2
Introduction of the Costs............................................................................................................2
Direct Costs............................................................................................................................2
Indirect costs...........................................................................................................................2
Fixed Costs.............................................................................................................................3
Variable costs.........................................................................................................................3
Semi Variable cost..................................................................................................................3
Stepped Cost...........................................................................................................................4
References..................................................................................................................................8

MANAGEMENT ACCOUNTING 2
Overview
Coca Cola
An American based corporation and manufacturer, producer and marketer of aerated drinks,
carbonated drinks and syrups. The company is known by its core product Coca- Cola which
came into existence in 1886 by pharmacist John Stith Pemberton, Atlanta. Currently the
revenue of the Coca cola Company is US$ 35.410 Billion with the operating income of US$
7.501 billion. With the team of the 61800 employees the company is performing consistently
(Coca Cola, 2017).
Introduction of the Costs
Direct Costs
Direct costs are the costs are the costs which can be directly attributable to a specific centre
or object such as the variety of processes or product. Direct costs are may be different as the
rate of the output changes in case of the labour, material, fuel or power. These costs are
generally managed and controlled by the department manager. The fundamental rule explains
there are certain costs which are of fixed nature in the short term period and in the long term
the costs are of the variable nature (Business Dictonary, 2017). The direct costs that are
attributable to the Coca Cola Company are transportation costs such as cans, lids of the
bottle, packaging material, chemicals.
Indirect costs
Indirect costs fall under the category of those costs which are not directly attributable to the
activity, cost object or the event. Such costs are generally accumulate in the overhead cost
pool and allocated to the various activities through the use of different allocation methods

MANAGEMENT ACCOUNTING 3
that build a bridge between the activity and the indirect cost (Accounting tools, 2017). For
example the maintenance of the equipment, depreciation, rent, quality assurance, purchasing
wages and production management are some of the examples of the manufacturing indirect
costs (Correia and Saldanha-da-Gama, 2014).
.
Fixed Costs
A fixed cost is an expense or cost which does not fluctuate due to increase in the number of
goods or services produced or sold. The fixed costs those costs which cannot be avoided
irrespective of the production or sales. They are usually used in the breakeven analysis and
also plays a vital role in deciding the profitability of the business. For the Coca Cola
company marketing budget would form the major fixed cost. Another additional expense
could be and equipment purchased or taken on lease for the production of the new product.
The real estate taxes and the insurance premiums are also part of the fixed costs.
Variable costs
A variable cost is the corporate expense which changes as the volume of the company’s
production changes. There is a direct relationship between the variable costa and the volume
of the production. As the production raises the variable costs rises and it falls as the
production goes below the break even. For example sweeteners and packaging are the
variable costs to Coca Cola Company since basic line of the company is to deliver the syrup
to the bottlers. Generally the variable costs are directly attributable to the contribution margin
of the company.
Semi Variable cost
A semi-variable cost, which is also known as semi fixed cost is a composition of both the
fixed and the variable cost (Gu, Simunic and Stein, 2017). These costs remain fixed for a