Accounting practices in Coca-Cola

Author: Iloka Benneth Chiemelie

Published: 15-October-2014

Company name

Coca-Cola Bottling Company PLC

Procedures for budgeting in Coca-Cola

In line with information gathered from the company’s annual report, it does perform both financial and non-financial budgeting (Coca-Cola, 2012) as a result of its goal driven business strategy. This implies that balanced scorecard is very important in the budgeting process of Coca-Cola as the company always aims to ensure that its financial objectives are perfectly aligned with non-financial objectives.

These budgets are adopted by the company to analyze and evaluate both its internal and external performance. In line with their annual report, the company does present a vivid analysis of its overall performance when it comes to what has been achieved at the end of the year and their future plans.

As a multi-national, the company does have numerous business units and departments that are responsible for undertaking different functions geared towards meeting their set corporate objectives. Thus, it is necessary for the company to analyze the performance of these different units and departments on their individual grounds in order to ensure that they meet their set corporate objectives. The company does perform the evaluation process in reference to set targets that have been allocated to each of these departments, and compare these set targets with the actual productivity or outcome from these departments. As such, it is easy for Coca-Cola to reference the results from the evaluation process when comparing between departments in terms of how they have successfully delivered their set corporate objectives.

Coca-Cola’s adoption of management accounting systems

The management accounting system in Coca-Cola has been carefully analyzed by Phil (1999), in which it has been noted that the company starts gathering necessary accounting information by analyzing all of its purchases and sales related activities. It company has a comprehensive inventory management system used to record all inbound and outbound logistics with respect to purchases and sales. Also, Phil (1999) noted that Coca-Cola does conduct vast surveys with consumers in order to understand their perception of the brand and new areas for improvement. These new gained understanding the management process in Coca-Cola and it does have significant influence on the decision making process of top managements in the company.

Coca-Cola’s costing methods

Considering that it is a global brand, it is easy to understand that demand can increase in one market while decreasing in another market. Thus, Coca-Cola adopts ABC based costing (Phil, 1999) in order to ensure that it only incurs cost for activities performed irrespective of the market where the cost has bene insured.

Coca-Cola’s capital decision making process

The company engages in huge investments and this implies that it is prone to high risk. Thus, it does adopt numerous capital decision making process in order to ensure that it avoids such risk in order to ensure sustainable financial performance of its business. Surely, the company does adopt a number of capital decision policies toward making such possible. For instance, it adopts payback period as a measure of when it should expect return from its investment and the shorter the payback period, the more likely it will invest in such business. NPV is also used to determine the actual value expected from its investments.

Criteria considered by Coca-Cola when deciding to acquire new investments

From the above analysis, it is obvious that Coca-Cola does make decisions to acquire new investments based on whether such investments will be able to return expected value within certain period of time. These values are described below:

Financial value – the company does carefully consider whether or not it will benefit financially from such investments, the level of expected benefits and when such benefits will start to come.

Non-financial value – additionally, the company always considers the non-financial benefits such as brand image or how the new investment will bring about increased customers’ loyalty by offering new products and/or services that are appealing to the customers.

Reference

Coca-Cola (2012), “Annual return.” Available at: http://www.coca-colacompany.com/annual-review/2012/pdf/form_10K_2012.pdf

Phil, W (1995), “Accounting at Coke and Coke’s bottling woes.” Available at: http://www.public.asu.edu/~bac524/accounting_at_coke_and_cokes_bottling_woes.pdf