Nestle Cost Accounting: Pricing Strategies and Financial Analysis

This case study provides an analysis of Nestle Corporation Limited's cost accounting practices, focusing on primary and secondary data sources for costing. It examines Nestle's pricing strategies, including skimming/penetration pricing, value-based pricing, competitor-based pricing, and cost-based pricing, using a research design that involves questionnaires, interviews, and surveys conducted in Bulgaria. The study highlights the importance of effective cost accounting for management, investors, and consumers, and discusses the calculation of unit costs, different types of costs (fixed and variable), and the components of a master budget, including operating, cash, static, financial, program, flexible, and capital expenditure budgets. The findings aid Nestle in making informed financial decisions, developing appropriate pricing strategies, and accurately evaluating pricing determinants, ultimately guiding the company in its budgeting processes. This document is a student contribution to Desklib, a platform offering study tools and resources.

N E S T L E C O R P O R AT I O N L I M I T E D
COST ACCOUNTING

Primary and Secondary Sources of Costing Data
Primary sources- material purchase records,
labor salaries and wages records, energy bills
records
Secondary sources- Material overheads, costs
of production records, production overhead
cost records.

Nestle Pricing Strategy Study
Nestle conducted the study to find out about
how customers perceive the pricing of their
products.
Bulgaria was selected the study.

Data Collection
Both primary data and secondary data were
collected in this research. The following
methods were used in collecting the data.
Interviews
Questionnaires
Surveys
Customer feedback

Pricing
Nestle corporation limited uses five different
pricing strategies including;
Skimming/penetration pricing
Value-based pricing
Competitor-based pricing
Cost based-pricing

Research Design for Nestle Corporation Limited
The company issued descriptive
questionnaires to the sample market
selected.

Participants
A section of the customers in Bulgaria was
selected for the research
60 people sample was selected to represent
the 1200 Nestle customers in Bulgaria.

Sample Design For Nestle Research
The participants of the research were
selected randomly from customers of
different stores of Nestle in Bulgaria.
The 60 people sample represented 5 percent
of the total Nestle customers in Bulgaria.

Example of the Sample Structure
Store Number of
customers
Sample Ratio Number
selected
1 480 0.05 24
2 300 0.05 15
3 420 0.05 21
Total 1200 0.05 60

Data collection
Primary data were collected using
questionnaires which the researcher
delivered.
The questionnaires basically interviewed on
the customer's perceptions concerning
Nestlé's products.

Data Analysis
The data collected were represented in
tables, and graphs so that they could be
interpreted and explained.

Findings
Most of the customers in new markets
wanted the prices to be special.
Customers in the existing markets preferred
competitive pricing.
Significant percentage of customers were
willing to pay for high quality products
despite high prices.

Nestlé's Pricing Strategy
Penetration pricing- setting special prices for
their new markets
Value based- producing high quality products
to fetch high market price
Competitor based pricing- setting prices
relative to those of their competitors
Cost-based pricing- setting price depending n
the total cost of production of the unit
product.

Importance of effective cost accounting to Nestle
1. Importance to management
It helps to ascertain the cost and selling price of the
product..
2. Importance to investors
Investors want to know the financial conditions and earning
capacity of the business.
3. Importance of consumers
Reduction in the cost is usually passed on the consumers in
the form of lower price. Consumers get quality goods at a
lower price.

The Importance of Cost Accounting
Helps in determination of employees’
rewards, where efficient workers are
rewarded highly
The government uses the accounts in
handing the income tax matters.

Discussion of Findings
The findings will be aid Nestle make proper
financial decisions
The company will use the information in
developing proper pricing strategy for their
markets.
Nestle company will use the data to
accurately evaluate the pricing determining
elements.
The data will guide the company in the
budgeting processes.

Unit Cost Calculation
The total amount that is used in the
production of a single unit f a product is
described as
It is calculated by finding the quotient of total
cost incurred in the production process and
the number of units produced.
UC= c/u

Types of Costs
Fixed-These are the costs that are incurred in
the process of production but are not dictated
by the units produced.
Variable costs- These are costs whose extent
is limited to quantity of production such as
purchase costs and labor costs

Types of Budgets
Master budget- This is the overall budget that
Nestle company makes to take care of all the
their expenditures in the production process.
The master budget is made up several types
of budgets which are mandatory for any
organization.

Components of Master Budget
Operating budget
Cash budget
Static budget
Financial budget
Program budget
Flexible budget
Capital expenditure budget