Managerial Accounting Report Research Assignment Paper (Essay Sample)

Managerial Accounting Report
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Managerial Accounting Report
Executive Summary
The Coca-Cola Company operates in the carbonated soft drink industry that is highly competitive. The company was founded in the year 1883, and it has become the world-leading manufacturer, distributor, and marketer of non-alcoholic soft beverages and syrups producing over 500 brands of beverages. The company is locally headquartered in Atlanta, Georgia, with more than 200 subsidiaries across the world. Back in 1886, the Coca-Cola Company first operated as soda fountain drinks. Over the years, sales of the fountain became quite popular, but the company's popularity grew more rapidly in the period, when it began bottling products, hence, making the beverage more popular. The company has managed to match with constant, trending, and dynamism of the global market through its mission and vision. The Coca-Cola's mission is to inflict moments of happiness through refreshments and establish a difference by creating a value for its customers. The company's vision aims at achieving the ability to make its customers happy, expand its projects' portfolio as well as improve its profitability and productivity.
In the recent years, Coca-Cola has seen a need to increase its profitability for it to enhance its sustainability in operations as well as the general company’s going concern. Having focused in the services and manufacturing activities, Coca-Cola can increase its profitability steadily through relevant managerial accounting strategies such as activity based costing, transfer pricing, relevant cost analysis and standard costing and variance analysis with respect to competitors’ performance in the market. . Thus, in the attempts to justify the need for the company to adopt the cost controlling and pricing, the report seeks to highlight on how Coca-Cola as a multinational company can effectively apply activity based costing, transfer pricing and relevant costing analysis as well as standard costing analysis as management accounting strategies that can be useful to the company’s performance in the market. Lastly, the reports explains how a balance scorecard might be useful for the company in terms of planning strategies.
Management Accounting Strategies
Activity Based Costing
Activity-based costing, ABC, refers to a management accounting tool that is used in assigning activities cost to a company’s products or services with respect to the resources the specific resources they consumed during their processing process(Wagener, 2013). ABC method has proved to be a more logical approach than the traditional approach that mostly relied on allocating costing according the respective machine hours consumed. ABC has offered an alternative to the traditional accounting as it will allows the company to effectively allocates indirect overheads cost such as electricity expenses, promotional and distributional costs into a proportionate activities of the direct costing(Wagener, 2013). Initially, the company discovered these application as unsatisfactory as in case of m two or more activities that absorbs similar directs costs, which prompts to consume different amount of overheads. For example, Coca-Cola’ mass production can using the mass industrial robot can end up absorbing equal amount of materials and labor as a customized robot(Wagener, 2013). However, the company experiences slight defense between the two form of robots as the customized robot engages the company’s engineers and this an additional labor cost compared to the mass produced one. The idea of spotting such as a difference is beneficial to Coca-Cola as this would not have been reflected in case a traditional costing system was in place(Wagener, 2013). Historically, the company has incurred huge losses in as it based some of its pricing on historic costing in making of the customized products. With recent technological advancement that has allowed that allows easily customization of products and services, Coca-Cola’s management accounting department will be able to accurately allocate indirect cost(Wagener, 2013).Importantly, Coca-Cola should consider trying implementing ABC strategy as pilot phase before completely implementing into the managerial; accounting system as valuable information for an effective ABC approach might not be available and may have to be computed.
Additionally, ABC approach can be of great importance to Coca-Cola as the company has continuously witnessed significant increase in the manufacturing overheads as costs(Wagener, 2013). Therefore, allocating this kind of overheads costs basing on their specific activities and actual cause of the overheads allows easily management of the variable costs(Debarshi, 2011). ABC will also help analyses machines hours and direct hours alongside manufacturing overheads as these two types of costs no longer correlate with each other. Coca-Cola’s product diversity and customer diversity have largely expanded, thus a need to separately classify to effectively enable easy control and planning of the manufacturing process.
Internal Transfer Pricing
Transfer pricing refers to an approach that sets the prices for goods and services that are sold between departments that exist within Coca-Cola companies(Chapman, Hopwood, & Shields, 2011). This allows an interdepartmental trading, whereby there is an exchange of products and services within the company at a set up price(Debarshi, 2011). Additional, this approach can also be applied between different branches and segment, provided they fall under Coca-Cola’ enterprise. The primary concept of this approach is that the companies division and subsidiary is are supposed to transact among each other, with an agreed transfer price which will be a key determinant for of costs(Chapman, Hopwood, & Shields, 2011). The agreed transfer price is tend to differ slightly with market prices as one of Coca-Cola’s division might loses in such a transaction. This might prompt the company’s division to consider purchasing at a price higher than the prevailing market price and sell below the market price, an approach that might affect Coca-Cola’ s performance(Nganga, 2014). Therefore, with an effective form of transfer pricing, the company can control costs at arm’s length as well as ensuring the fairness and accuracy of the transfer pricing within the related entities.
Another reason that makes transfer pricing approach will also offer Coca-Cola’ as multinational company with the tax advantages, However, regulatory bodies perceive this approach as unlawful as it is considered as a tax avoidance strategy(Chapman, Hopwood, & Shields, 2011). Coca-Cola’ can take benefit from the application of transfer pricing as the company can boot its subsidiary profits of the products and services in various market segments that have a lower corporate taxation rate(Debarshi, 2011). Additionally, Coca-Cola’ can benefit on transfer pricing policy in cases where it subsidiaries carries out the transfer or products and service from one county to another. This will enable Coca-Cola’ to avoid additional cost such as the international tariffs and taxes imposed on goods and services.
Relevant Cost Analysis
Relevant costs analysis refers to a managerial accounting technique that refers to the avoidable and incremental cost that a company might incur when making business decisions. Precisely, relevant costing seeks to establish the objective cost of business decisions(Chapman, Hopwood, & Shields, 2011). The measure of an objective cost is determined by the extent of a company’ cash outflows that that can arose from its implementation. In other words, relevant costing tend to place much focus on costs that affects that inflow and outflow of the cash flows and ignores the costs with no impact on cash flows(Debarshi, 2011). For example, assume the company’s products such as Coca-Cola zero is offered to the market at discount card or $45, which guarantees consumers a 10 % discount all future buying. The idea is to distinguish a non- relevant cost that will not be of any importance to the company’s decision processes. The non-relevant cost refers to costs refers the type of costs which do not affects a company’s decision on matter pertaining costs control(Chapman, Hopwood, & Shields, 2011). This cost comprises of net book values, committed costs, sun cost and non-cash flow costs as well as fixed general overheads.
The company can apply relevant costing approach in the activities that demand short term financial decision. The company should not only rely on the pricing decisions, it has to charge a reasonable price that guarantees a sufficient profit margin that is a below its relevant cost but above its total cost for Coca-Cola to be sustainable in the long run(Nganga, 2014). Coca-Cola can generally apply relevant costing in further processing decision, competitive pricing decision as well as make or buy decisions(Debarshi, 2011). For example in a make or buy decision, the company arrives at the decision of making or buying a particular product after calculating its contribution margin(Debarshi, 2011). In the calculation of contribution margin, the cost of direct materials and labor are classified as variable costs and subtracted from sales, whereas fixed cost is not considered
Standard Costing and Variance Analysis
Standard Costing is a management accounting tool that will be fit for Coca-Cola since as a services and ma...