SCHOOL OF BUSINESS
ASSIGNMENT COVER SHEET
Student name: ROHIT SITOULA
Student ID number: 18855962
Unit name: Management Accounting
Unit number: 200494
Date submitted: 25/02/18
Executive Summary
The foremost purpose of this project is to examine and understand the practical
application of managerial accounting and most specifically the Activity Based
Costing (ABC) in their internal business management. Coca-Cola is one of the
most popular and the largest beverage company engaged in the manufacturing,
distributing and marketing. It that has a large portfolio of products popular all
around the world. This report further explains how the company has been able to
reach to the top and enjoy the success that it has been doing in the past decades by
adopting the ABC method in the organisation.
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TABLE OF CONTENT
Executive summary ________________________________________________ 1
Introduction ______________________________________________________ 3
Coca-Cola Company and its management accounting approach - ABC ______ 3
Conclusion _______________________________________________________ 7
References _______________________________________________________ 9
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Introduction
Accounting is very much necessary to run the business. Various accounting
techniques and methods are present, and it is very important to know which
technique is the best to use for the organisations (American Institute of CPAs
2011). Managerial accounting is the branch of accounting that helps to deal with
financial transactions that are very important to an organisation (Noah P. Barsky
2017). Management accounting is the process of distinguishing, analysing,
recording and giving financial information which is used internally by the
management for proper planning, decision making and control mechanisms in an
organisation. Management accounting plays a vital role in the organisation in the
modern world of today.
Coca-Cola Company and its management accounting approach - ABC
Coca-Cola Company has enjoyed grand success in the world as one of the most
successful companies in the past two decades. It is one of the largest manufacturers
of soft drinks along with several other products under the same brand name. The
main factor that leads to the success of the company is its unique and innovative
approach to business (Saunders & Cornett 2016). The company operates in nearly
about 200 countries around the world fulfilling various individual needs of the
target market around the world.
Coca-Cola adopts cost accounting approach, and that is the Activity Based Costing
(ABC). ABC is the main process that runs the daily business process of the
company and helps to determine the price of goods that is related to different
actions included in the procedure of production (Cokins 2001). The operations of
the corporation in many countries and similar activities carried out can come with
different prices in different countries which demands the company and its needs to
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be flexible. Thus, due to this reason, ABC is the most popularly used costing
method in the Coca-Cola Company.
Activity-based costing is a relatively new way that helps in allocating costs precise
methods and facilities. This method makes sure that the prices are distributed
exactly to the goods and products which created it (Warren, Reeve & Duchac
2016). The ABC system helps to illustrate the costs more accurately and in doing
so helps the internal management by providing a vision to the price that is related
to the specific corporate actions of a company that is carried out. The traditional
costing method depicts a very limited and tend to show an unrealistic view of the
profitability of the company that might be easily contorted (Warren, Reeve &
Duchac 2017). The things are that traditional costing assigns costs to products
related to the size of a cost driver like the number of direct labour hours required to
manufacture the product. It does not provide an actual understanding of what the
real and the actual costs are. Thus, contrary to old-style cost-accounting systems,
ABC organisations changes all this by providing an actual calculation of daily and
monthly costs which helps the management to review and adapt to changing
situations by adjusting the prices, selection of products and other various changes
(Ponisciakova, Gogolova & Ivankova 2015). Thus, ABC helps to assigns costs to
each activity that occurred in the process of manufacturing which helps to provide
the management with the sequential process of how the process is carried out by
showing how the costs are accumulated as products move through the
manufacturing process.
In a globally competitive market of today’s, it is very much important for the
managers of the company to be able to properly know about the costs of the
products so that they can make good and informed decisions for the overall benefit
of the company and also to compete in the competitive market with the rival
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companies (Brooke R Envick Ph.D. 2015). The Coca-Cola Company has been able
to benefit from adopting the ABC approach in their management as the accuracy of
the costing is maintained. It has helped the company in eliminating the irrelevant
costs to a product during the production process. Furthermore, this costing method
has mostly helped the internal management of the Coca-Cola Company in the
decision making process and the ability to allocate benchmarking and help in the
understanding of the overall overhead costs (Harrison 1999). The only drawback
that the company has faced in terms of the ABC costing is that while adopting this
particular method, the company needed significant and important allocation of
resources so that the costing method can be effectively maintained and carried out
for the overall benefit of the Coca-Cola Company and its customers and the
shareholders of the company. Another drawback that this method has presented
with is that some of the customers easily misinterpret it. Since, Coca-Cola is a
large company with abundant funds, adopting the ABC costing method and
measures have not been a disadvantage to date. Coca-Cola Company has very
much enjoyed the results that they get from adopting the ABC. This method has
helped the company to forecast the accurate method of product and service costing
which has further led to the process of accurate decision making regarding the
pricing of the products and services (Wouters & Stecher 2017). It has helped the
managers of the company in the understanding of the overhead costs and has
helped the managers to reduce the non-value adding activities and measurements
(Cokins 2001). This method has further enabled the company to efficiently
encounter the operational outlays to discover best means to assign and eradicate
the overall overhead prices. It also has led to improvement and goods and services
examination as well as the effectiveness of the customers. The ABC method works
best for large companies like Coca-Cola as they tend to have complex work
environments where the company tend to operate under huge and varied machines
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and products and the process of product manufacturing tends to be tangled and
quite tedious and also procedures which are difficult to eradicate. All companies
cannot successfully adopt the ABC method of costing and measurement as it
requires huge investment and it is difficult to maintain this system of costing as it
needs the expertise to handle the overall costing and management. But once they
get to know this method, then it can be used for the overall profitability of the
company which helps the managers of the company to forecast the price of the
products and services and develop methods and strategies that suit the pricing of
the products. Also, the major benefit that this method of costing provides to the
company is the accurate and high quality of information regarding the management
of accounting (Weygandt, Kimmel & Kieso 2016). This method of costing cannot
be implemented by the small companies as it requires huge financial investments
and also it is quite difficult to install the ABC systems when the company tries to
install it across all the product lines and facilities (Shigaev 2015).
Therefore, we can observe that the Coca-Cola Company has reached unbelievable
growth and expansion and has been successful in reaching out to 200 different
countries around the world with over 500 brands and about 3500 products under
the beverage portfolio. And the success that has helped the company to reach its
success position is by adopting the activity-based costing method along with
different other such techniques.
Therefore, activity-based costing (ABC) is an important tool which helps managers
of the company to determine the products costs and help in the effective decisionmaking process of the company. ABC helps the internal management of the CocaCola Company to forecast the costa and help in the fulfilment of the overall
objectives and goals of the company and maximise the profitability of the company
(Jing & Songqing 2011). The need and requirements of the target market and its
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potential customers change frequently, and it is necessary for a company to be
flexible in its operations and management so that they can cater to the different
needs and requirements of the customers. Coca-Cola is a company that takes into
consideration the needs and requirements of the customers and develop products
and services that best suit the taste and preferences of the customers. This is where
the activity-based costing comes into play and help the internal management of the
company to be flexible in its operations as well as predict the costs that are
associated with the production of products and their optimal costs. The company
has been taking advantage of the use of ABC technique for their benefit and
standing at the top of the business game in the competitive global market of the
modern world of today. The managers and the management cannot make decisions
without accurate and reliable information which is provided to them by adopting
the ABC technique.
Hence, I would like to recommend the company to utilize the ABC technique
instead of the traditional costing method as the ABC technique is far more flexible
and helps to provide reliable and accurate information which is required by the
managers of the company to predict the overall costs and also to make effective
decisions in order to maximize the profitability of the company.
Conclusion
Management accounting is one of the very important part and a necessity for the
company for various reasons (Noah P. Barsky 2017). The main purpose is that it
aids corporation in predicting & calculating the required result from its commercial
procedures (Horngren 2017). Therefore, it’s not shocking to observe that
supervising accounting is a vital part of Coca-Cola Company’s main accounting
systems and overall management process.
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The utmost noteworthy finding is that the Coca-Cola Company accepts ABC
accounting measure in contradiction of the old-style cost methods. The main
motive behind this is, it helps in maintaining the operation across the nation &
helps in offering a huge number of goods to the worldwide marketplace (Wouters
& Stecher 2017). Hence, it is essential that the company devotes while it is
operating in its place of the joined budgeting method which drives business only to
expand when it’s not working. By doing so, Coca-Cola Company can minimise the
overall costs while still benefiting from the increase in the economies of largescale manufacture & maximising the productivity of the company in the process.
To conclude, management accounting is so much significant for the corporations
as it helps in the entire management procedure (Saunders & Cornett 2016).
Moreover, the principal costing method is ABC as it enables the businesses only to
expand while they are still operating which helps to diminish their complete
charges and take benefit of the economies of large-scale manufacture to raise their
income.
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References
American Institute of CPAs 2011, ‘Accounting Trends and Techniques: American
Institute of CPAs: 9780870519819: Amazon.com: Books’, accessed February
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r=1-5&keywords=accounting+techniques>.
Brooke R Envick Ph.D. 2015, ‘Target Markets &amp; Customer Segments in San
Antonio by Zip Code: Brooke R Envick Ph.D.: 9781515219620:
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Cokins, G 2001, Activity-based cost management : an executive’s guide, Wiley.
Harrison, EF 1999, The managerial decision-making process, Houghton Mifflin.
Horngren, CT 2017, Introduction to management accounting,.
Jing, H & Songqing, L 2011, ‘The Research of Environmental Costs Based on
Activity Based Cost’, Procedia Environmental Sciences, vol. 10, pp. 147–151.
Noah P. Barsky 2017, ‘Management Accounting: A Business Planning Approach:
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Books’,
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Ponisciakova, O, Gogolova, M & Ivankova, K 2015, ‘Calculations in Managerial
Accounting’, Procedia Economics and Finance, vol. 26, pp. 431–437.
Saunders, A & Cornett, MM 2016, Financial institutions management : a risk
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