BTEC HNC Business Unit 5: Management Accounting Report on Coca-Cola

This report provides a comprehensive overview of management accounting principles and their practical application, using The Coca-Cola Company as a case study. It begins by exploring cost calculation techniques, including fixed and variable costs, direct and indirect costs, and various costing methods like absorption and marginal costing. The report then delves into the effective application of management accounting techniques, emphasizing their role in informed decision-making and cost reduction. Furthermore, it examines the production of financial reports and the advantages and disadvantages of planning tools, such as budgets and pricing strategies, for budgetary control. The analysis extends to the use of these planning tools in addressing financial problems, incorporating techniques like benchmarking and KPIs. The report concludes with a comparison of organizations based on their adoption of management accounting systems and their ability to deal with financial challenges.

Management
Accounting

Contents
TASK 2..........................................................................................................................................................3
P3: Calculation of costs using appropriate techniques............................................................................3
M2: Accurate application of range of management accounting techniques...........................................7
D2: Producing of financial reports...........................................................................................................8
TASK 3..........................................................................................................................................................8
P4: Advantages and disadvantages of planning tools used for budgetary control..................................8
M3: Analysis of use of planning tools....................................................................................................10
TASK 4........................................................................................................................................................10
P5: Comparison of organizations on the basis of adoption of management accounting systems.........10
M4: Analysis of attaining success through dealing with financial problems..........................................11
D3: Evaluation of planning tools responding to financial problems for attaining success.....................12
CONCLUSION.............................................................................................................................................12
REFERENCES..............................................................................................................................................13

INTRODUCTION
Management accounting refers to a technique of using provisions related with accounting
for the advantage of the company and to aid management in decision-making process (Dou,
Khan and Zou, 2016). This assignment is based upon The Coca Cola Company, which is an
American manufacturer of soft drinks. In this report, detailed focus will be made on the
demonstration of understanding of management accounting systems, application of different
techniques for management accounting. Additionally, the use of planning tools and comparison
of various types of ways in which organizations can use data of management accounting will be
discussed as a part of this report.
TASK 2
P3: Calculation of costs using appropriate techniques
The expenses which are incurred by a firm in producing a product or providing a service
are referred as cost.
Microeconomic techniques-
The types of costs which incur in a company like Coca Cola are as follows-
Fixed and variable costs- Fixed costs don’t change with a change in the level of
production, variable costs change with a change in the level of production (Ferentinou and
Anagnostopoulou, 2016). In Coca Cola, both types of costs are incurred.
Direct and indirect costs- Direct costs can be directly attributed to the output while
indirect costs cannot be attributed to them. Coca Cola incurs both of them.
Product and period costs- Product costs are associated with the product. Period costs
are associated with a particular period of accounting. In Coca Cola, both are incurred.
Cost analysis- Cost analysis refers to a detailed analysis of the costs which are being
incurred in the business. It can be performed by Coca Cola which will enable it to identify its
costs and try to reduce them.
Cost-volume-profit analysis- Cost-volume-profit analysis is commonly associated with
analysis of break-even point in a company. It is a point where it does not earns profit nor does it
incurs a loss. Coca Cola can use it to find out break-even point.
Flexible budgeting- A flexible budget is the one which is flexible and changes with a
change in the level of activity of the firm. Coca Cola can prepare which will be advantageous for
it.

Cost variances- Cost variances incur when there is a difference between the actual cost
and the planned cost. They also happen in Coca Cola which needs to find a solution to reduce
them.
Absorption costing- It is a method to calculate costs which takes into account indirect
expenses as well as direct costs. Coca Cola Company can use this technique (Greiner, Kohlbeck
and Smith, 2017).
Marginal costing- It is a method wherein variable costs are charged to units of
production and fixed cost is completely written off against it (Gullberg, 2016).

Explanation- Cost of goods of Prime Furniture has been calculated by multiplying the
units of production with the cost per unit. It is an expense which is deducted from the sales to
arrive at the desired figure. Closing Stock has been adjusted because it denotes goods which have
not been sold and therefore their deduction should not be made from the income of the company.
Thus in this way the profitability of the company has been calculated by application of the right
techniques. The Variable Costing Profit of the Quarter 1 is 1900 and 4700 respectively. The
Absorption Costing Profit of the Quarter 1 is 4300 and 3100 respectively. In the Quarter 2 the
results are same. This means that the profit has remained constant through both the quarters.

Product costing-
Fixed costs- The examples of fixed costs in Coca Cola can be salary, rent etc.
Variable costs- The examples of variable costs in Coca Cola can be manufacturing
expenses, production cost etc.
Cost allocation- It refers to allocation of costs according to specific guidelines of
company. It can be used by Coca Cola for proper distribution of costs.
Normal costing- In normal costing Coca Cola can find out the expenses related to its
products and can then analyze it.
Standard costing- In standard costing Coca Cola can find out the costs and can compare
it with standard costs to find out favorable or adverse variances (Guthrie, Manes-Rossi and
Orelli, 2017).
Activity-based costing- This type of costing is based on activities. Coca Cola can
analyze it on the basis of level of activities.
Role of costing- Costing has a big role to play in setting up price. Coca Cola needs to set
up its price after analyzing its costs associated with the product.
Cost of inventory-
Inventory costs- These costs are associated with administration and maintenance of
stock levels of company (Jovanović and Dragija, 2018). Coca Cola also incurs these costs.
Types of inventory costs-
 Ordering costs
 Carrying costs
Benefits of reducing inventory costs-
 Reduction of maintenance costs
 Flexibility
Valuation methods-
 LIFO method
 FIFO method
 Average cost method

Cost variances- Cost variances incur when there is a difference between the actual cost
and the planned cost. They also happen in Coca Cola which needs to find a solution to reduce
them.
Overhead costs- Overhead costs are those expenses which are incurred except direct
labor, material and other direct expenses. These are incurred in Coca Cola.
M2: Accurate application of range of management accounting techniques
The techniques of management accounting can be applied effectively and efficiently by
managers of an enterprise to facilitate better decision-making within the company. If applied in
the right manner it can result in reduction of costs and maximization of profits. Thus, Coca Cola
can use these techniques to get ahead of the competition in the market. It can also use them to
bring improvements within the company itself. Chances of errors are also reduced significantly
with their planned usage.
D2: Producing of financial reports
Financial reports can be prepared on the basis of financial statements of the company at
the end of the financial year. These reports are of great help for effectively analyzing and
interpreting the performance of firm and comparing it with industrial standards or with
competitors. Thus mistakes can be identified quickly and can be reduced. Thus it ultimately
helps in increasing the profitability level which is quite necessary for a big multinational
company like Coca-Cola to sustain in the market against ever-increasing level of competition.
TASK 3
P4: Advantages and disadvantages of planning tools used for budgetary control
The different type of planning tools which can be used by Coca Cola Company are
explained as follows-
Budgets-
A budget refers to an estimate of revenues and expenses over a particular period of time.
It is used by Coca Cola company for the purpose of preparing an estimation and forecast of
incomes and expenditures and for achievement of controlling objectives (Krutova, 2016).
Type of budgets-
Cash budget-
It is an estimation of cash receipts and revenues over a particular period of time. Coca
Cola can use it which will facilitate it to keep a better track of its cash and other liquid
resources.

Advantages-
 It can help in facilitating better planning of cash so that Coca Cola does not have shortage
of cash.
 In helps in better forecasting of cash which can be useful for a big company like Coca
Cola.
Disadvantages-
 Preparation of cash budget can involve inaccuracies which can affect Coca Cola.
 Its preparation is very time-consuming as well as costly which may put strain on financial
resources of Coca Cola.
Operating budget-
It refers to forecasting of revenues and expenses over a particular period of time
(Luo and Tang, 2016). Coca Cola can use it in order to identify its operating incomes and
expenses.
Advantages-
 It helps in tracking of operational expenses which can be helpful for Coca Cola.
 It helps in projection of expenses which are to be incurred in the future which can help
Coca Cola in forecasting.
Disadvantages-
 Its preparation is prone to errors which can hurt the prospects of Coca Cola.
 Its preparation is time-consuming and costly in nature which can create financial burden
on Coca Cola.
Master budget-
It is an aggregation of all the budgets which are prepared by a company. Coca
Cola can prepare it as it includes all the estimates related with its operations.
Advantages-
 It is a comprehensive budget which includes all the elements related with business which
benefits Coca Cola.
 It can be easily used to detect the problems related with operations of the firm so that
they can be rectified quickly.
Disadvantages-
 It does not include specialization which can create issues for a big company with various
types of departments.
 It is quite difficult to understand and lacks the simplicity of other budgets which can be
disadvantageous for Coca Cola Company
Justification-

Coca Cola must choose Master Budget as it will be quite beneficial for it in
execution of its operations and proper forecasting of needs and requirements in future.
Importance of budgets as a planning tool-
Budgets are important as a planning tool because they can help in forecasting of
revenues and expenses over a particular period of time. Also, they can be used for
comparison and controlling purpose. Thus they are quite useful for Coca Cola.
Pricing strategies-
Pricing strategies can be used by a business while selling a product or service to
the customers in the market. Coca Cola can use them for attaining its long-term objective
of maximization of profits.
Advantages-
 Use of pricing strategies can make a product look more appealing to the customers
thereby enhancing the level of profits of company.
 They can be used for planning to maximize the profits.
Disadvantages-
 If they are not applied successfully they can make the product less appealing to the
customers.
 If wrong pricing strategy is applied then it can result in decrease in the profits of
company.
M3: Analysis of use of planning tools
The planning tools like budgets, pricing strategies etc. are of great help to a firm in
eradicating its problems and issues. These tools help in framing of right business strategies to
survive against the increasing competition. If the management is able to use them effectively and
efficiently then it can result in increase in profits. Also, the managers of Coca Cola can use them
to plan for their company’s long-term future. This will essentially enable dealing with problems
and issues that the firm can face in the future. Therefore their usage is recommended for the
organization.
TASK 4
P5: Comparison of organizations on the basis of adoption of management
accounting systems
As a large organization Coca Cola faces different types of problems such as-

Lack of liquidity- Coca Cola is facing strain on its liquid resources and as a result the
overall liquid resources of the company are affected.
Excessive cost- Coca Cola is facing the problem of excessive cost in its manufacturing
operations which are affecting its level of profits.
The following techniques can be used by organizations to solve their financial problems-
Benchmarking- It refers to a process of setting up of standards and metrics which can be
related with the industry and using them to compare actual performance for the purpose of
identification of deviations and variances (Phan, Baird and Su, 2018). Using benchmarking, Coca
Cola can solve its problem of excessive cost as it can compare the costs it is incurring with
previous years to get a better idea of its performance.
KPIs- Key performance indicators are various types of metrics which can be used to
gauge the performance of a company (Suhartini, 2018). They can be financial as well as non-
financial. Financial KPIs measure the quantitative aspects while Non-financial KPIs measure the
qualitative aspects. Using KPIs, Coca Cola can solve its problem of lack of liquidity.
Financial governance- Financial governance refers to ways in which a company
collects, organizes, manages and controls financial data and information (Zou, 2019). It can be
used effectively to solve problems and issues related with finance of the firm as it can monitor
what went wrong and how it can be prevented in the future.
It can be also used to monitor the strategies prepared by a business enterprise as it can
change them if it is found out that they are not being executed properly.
Characteristics of an effective management accountant-
The characteristics of an effective management accountant are leadership, effectively
dealing with problems, taking of responsibility, working with a team etc. These characteristics
help a management accountant to take decisions which are for the benefit of the organization.
Comparison between companies-
Basis Coca-Cola Pepsi
Problem faced It faces problem of excessive
cost.
It faces problem of excessive
price charging.
Management accounting
system used
It should use cost accounting
system to effectively deal with
this problem as it will help it
in finding and reducing
excessive cost.
It should use price
optimization system to deal
with this problem.

M4: Analysis of attaining success through dealing with financial problems
If the mangers of Coca-Cola can use the techniques of benchmarking, KPIs effectively
and follow the program of financial governance set up by the company then it can result in
eradication of its problems. This will ensure that after dealing with these issues the company is
ready to get ahead of competition and increase its level of profitability. Thus its chances of
attaining success greatly increase through proper application of these techniques. Also, they can
be of great help to the management in taking of strategic decisions for benefit of the company.
D3: Evaluation of planning tools responding to financial problems for attaining
success
The planning tools like budgets and pricing strategies facilitate better decision-making
among managers. Using budgets, they can forecast the revenues and expenditures in the future.
By use of pricing strategies, they can set an appropriate price for their products and services to
gain sustainable competitive advantage. Thus these tools are helpful in dealing with financial
problems also to make sure that they don’t occur in the future and also efficiency level is
maintained in a big company like Coca Cola. Therefore they are very important particularly for
large-scale organizations.
CONCLUSION
From the above report, it can be concluded that management accounting is very helpful
for managers in strategically planning for the organization. Management Accounting and its
systems can be used according to requirements of the company. Various methods can be used to
prepare reports for analysis purpose. Costs in the firm can be calculated using marginal and
absorption costing techniques. Budgetary control tools have their own advantages and
disadvantages. Organizations can use them effectively and efficiently for their own strategic
advantage and planning for long-term future. Companies are adopting management accounting
systems to solve their varied financial problems by using its accounting systems.

REFERENCES
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management before and after IFRS adoption. Journal of Applied Accounting Research.
Greiner, A., Kohlbeck, M. J. and Smith, T. J., 2017. The relationship between aggressive real
earnings management and current and future audit fees. Auditing: A Journal of Practice &
Theory. 36(1). pp.85-107.
Gullberg, C., 2016. What makes accounting information timely?. Qualitative Research in
Accounting & Management.
Guthrie, J., Manes-Rossi, F. and Orelli, R. L., 2017. Integrated reporting and integrated thinking
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Jovanović, T. and Dragija, M., 2018. Application of the accounting information at higher
education institutions in Slovenia and Croatia-preparation of public policy
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Phan, T. N., Baird, K. and Su, S., 2018. Environmental activity management: its use and impact
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Zou, Y., 2019. Strategic entry decisions, accounting signals, and risk management. Accounting
Signals, and Risk Management. (April 13, 2019).