Accounting论文模板 – Accounting Report – Coca Cola

Part A

This report will focus on the Coca Cola Company with its main product, 500 ml Coke. The 500 ml coke will be the main product that will be subjected to analysis.

Coca Cola Company’s Cost Units and Cost Centre

The company’s cost unit will be the 500 ml Coke. This implies that all the unit variable and fixed production costs will be traced to the 500 ml Coke. The company’s cost center will consist of the Coke product division. This refers to a cost pool where all the production overhead for the Coke product is initially assigned. This cost is later allocated to the various Coke products.

Unit Manufacturing Costs

Costs involved in manufacturing one product consist of the direct production costs. These refer to the variable production costs that can be traced to the individual products. In addition, there is a fixed production overhead that cannot be traced to a single product. These costs are normally assigned to the cost center.

  • Direct production costs for the 500 ml Coke
Cost ComponentProportionUnit Cost($)
Direct material20%0.3
Direct Labor20%0.3
Direct expenses10%0.15
  • Fixed Overheads for the 500 ml Coke in the Year 2013
 OverheadsCosts($ Million)
Fixed production overheads5,400
Fixed non-production overheads17,310

Price for the 500 ml Coke

The price for the 500 ml Coke that will be used in this analysis will be the average 500 ml Coke price of $1.50.

Costs per Unit and the Total Costs for the 500 ml Coke

The unit cost for the 500 ml Coke is $1.2 (see appendix 1.1). This implies that the total cost for the product is ($ 1.2 * 50,000 units) = $60,000 per month.

Cost per Unit using Absorption and Marginal Costing

The cost per unit using absorption costing is $1.2 while the cost per unit using marginal costing is $0.75 (see appendix 1.2 and 1.3)

Profit for the Period using Absorption and Marginal Costing

Using absorption costing, the profit for the month of February is $15,000 while the profit for the month of March is $ 11,250 (see appendix 1.4).

Using marginal costing the profit for the month of February is $37,500 while the profit for the month of March is $ 28,125 (see appendix 1.5).

Computation of the Break-even points

The break-even point in units is 30,280 million bottles of 500 ml Coke while the break-even point in sales revenue is $ 45,420 million. The break-even as a percentage of capacity is 60.56%. Finally, the break-even point given a 15% increment in February profits is 87,780 million bottles of 500 ml Coke.

Description of the Company’s Manufacturing Structure

The manufacturing cost involved in the production of the 500 ml Coke consist of the direct production costs that include direct material, direct labor and direct expenses costs. In addition, the company incurs a fixed production overhead as well as a fixed non-manufacturing overhead in its cost structure.

Discussion of the difference in Absorption Costing and Marginal Costing Profits

The difference between marginal costing profits and absorption costing profits is brought by the inclusion of the fixed production overhead in the case of computation for absorption profits. This is because while the fixed production overheads are expensed in the period in the case of marginal costing approach, the fixed production overheads are included in the product costs in the case of absorption costing. Consider the following reconciliation;

February                                            $

Marginal costing profits                        37,500              

Less fixed production overheads (0.45 * 50,000)      (22,500)

Absorption costing profits                           15,000

March                                                   $

Marginal costing profits                        28,125

Less fixed production overhead (0.45 *37,500)  (16,875)

Absorption costing profits                            11,250

Explanation of the Break-Even Point Analysis

The break-even point analyzes the number of units of the 500 ml Coke that must be sold for the company to recover all its fixed costs. The break-even point depicts how far the company’s sales may fall for it to incur losses.

Part B

Key Features of the Activity Based Costing compared to the Traditional Costing Methods

The main feature of the activity based costing method is that costs are apportioned on the basis of the activity cost drivers such as the number of production runs, floor space etc. while the traditional costing methods apportion costs using volume based costs drivers such as the number of labor hours.

Therefore, activity based costing method provides more accurate cost and price measures compared to the traditional costing methods that are less accurate. Its impact on the sales volume assuming a 10% reduction in the product costs will depend on the elasticity of demand for the specific product.

In scenario one, if the product is price elastic, then the reduction of 10% in cost will lead to a more than 10% increase in the demand for the 500 ml Coke. In scenario two, if the product has an inelastic demand, then a 10% reduction in price, will lead to a less than 10% increase in the demand for the product.

Appendix

1.1 Computation of the Unit Cost of Production for the 500 ml Coke

Cost ComponentProportionUnit Cost ($)
Direct material20%0.3
Direct labour30%0.45
Fixed overheads30%0.45
Unit cost80%1.2

1.2 Computation of the Costs per Unit (Absorption Costing)

Cost ComponentFebruary 2014 ($)March 2014 ($)
Direct material0.30.3
Direct labor0.450.45
Fixed overheads0.450.45
Unit Costs1.21.2

1.3 Computation of Unit Costs per Unit (Marginal Costing)

Cost ComponentFebruary 2014 ($)March 2014 ($)
Direct material0.30.3
Direct labor0.450.45
Unit Cost0.750.75

1.4 Computation of the Profits for the Period (Absorption Costing)

 February 2014 ($)March 2014 ($)
Sales revenue  75,000  56,250
Cost of goods sold( 60,000)( 45,000)
Profits  15,000   11,250

1.5 Computation of the Profits for the Period (Marginal Costing)

 February 2014 ($)March 2014 ($)
Sales revenue  75,000 56,250
Cost of goods sold( 37,500)( 28,125)
Profits  37,500  28,125

1.6 Computation of the Break-Even Point in Units

Break-even point (units) = Fixed costs/ unit contribution margin

Unit Contribution margin        $

Selling price per unit               1.5

Unit variable costs                        0.75

                                   0.75

Break-even point (units) = 22,710 million/ 0.75 = 30,280 million 500 ml bottles of Coke.

Break-even point (sales revenue) = break-even point (units) * selling price

                                  = $ 45,420 million

Break-even point (percentage of capacity) = 30,280/50,000 *100

                                            = 60.56%

Break-even point (to achieve a 15% extra profits in February) = (22,710 + (37,500 * 1.15)/ 0.75 = 87, 780 million bottles of 500 ml Coke.

References

Albright, T 2000, ‘Software for activity based management’, Journal of Cost Management, vol. 6, no. 25.

Allet, M 2012, ‘Measuring the environmental performance of Microfinance’, Journal of Cost Management, vol.6, no. 27.

Ansari, S 2009, ‘Strategies for training in target costing’, Journal of Cost Management, vol.18, no. 26.

Coca Cola Company 2013, 2013 Annual report and financial statement [online] Available from: <http://www.coca-colacompany.com>[Accessed on 24th February 2015].

Coca Cola Company 2014, 2013 Annual report and financial statements [online] Available from: < http://www.coca-colacompany.com> [Accessed on 24th February 2015].

Drury, D 2004, Management and cost accounting, London: BookPower

Drury, D 2005, Management and cost accounting, London: BookPower

Ji, HW 2014, Activity based costing [online] Available from :< http://www.cgma.org>[accessed on 24th February 2015].

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