THE IMPLEMENTATION OF MANAGEMENT ACCOUNTING IN THE

COCA-COLA COMPANY

Seminar on Management Accounting Term Paper

By:
Azizah Dzufa
1810532026

Lecturer:
Riwayadi, MBA., Ak., CA., CPMA., CSRA., CRP.

INTERNATIONAL ACCOUNTING DEPARTMENT

FACULTY OF ECONOMICS
UNIVERSITAS ANDALAS
2022
 THE IMPLEMENTATION OF MANAGEMENT ACCOUNTING IN THE
COCA-COLA COMPANY

1. Company Overview

The Coca-Cola Company is carbonated drink company that was first introduced on
May 8th 1886, 135 years ago. The drink itself, Coca-Cola, initially started as a medicine
but has since grown to become soft drink that can be drunk by many people. The drink
receives its name from the two original main ingredients which were coca leaves and
kola nuts. Those ingredients have since changed since then and the current ingredients
are classified as a trade secret.

Currently The Coca-Cola Company is one of the largest companies in the world
and have claimed to serve more than 1.9 billion drinks across more than 200 countries
each day. They are presently employing over 700,000 employees and 225 bottling
partners in order for their products to reach all parts of the world.

1.2 Vision and Mission

The Coca-Cola Company has a purpose statement of “To refresh the world. Make
a difference”. The CEO of Coca-Cola in 2019 stated that the word refresh is not limited
to only the physical sense but also to the spirit and communities. They stated that the
company has grown a lot since its establishment and have been spreading joy, optimism
and happiness since then.

The company also has a vision that is stated as follows: “Our vision is to craft the
brands and choice of rinks that people love, to refresh them in body and spirit. And
done in ways that create a more sustainable business and better shared future that makes
a difference in people’s lives, communities and our planet.” From this vision, the
company extracts three core values: loved brands, done sustainably and for a better
shared future.
 “Loved brands” means that Coca-Cola is passionate for its people and their lives.
They are confidents in the excellence of their ingredients, innovation, design and
marketing. They are committed to having investment for leadership across different
categories with brands that are loved by the consumers. They are acting both globally
and locally. Lastly, they have partnerships that allow them to bring their products to
the public. As for “done sustainably”, Coca-Cola claims that they are based in science.
They also state that while their business grows, their sugar contend continues to
decrease. They are committed to make products that can be reused and are also
improving water security. They are also reducing their carbon footprint while sourcing
more sustainably. The last core value is “for a better shared future” in which they invest
in the employees’ personal growth and empower them all equally. They also promise
to create value for customers and support local communities. Lastly, they are
committed to deliver return to their investors.

1.3 Company Value

The Coca-Cola Company state that they are always trying to grow and continuously
improve their business. There are several behaviors that they take into account when
achieving this. The first is to stay curious. This means that they are always seeking;
how to be better the whys, whats, and ifs. The second is empowered which means they
own what they do and take accountability for their actions. The third behavior is to be
inclusive, meaning that they have diversified their company. They do not discriminate
when hiring those that work for them. The last behavior is to be agile and to always
improve and act with a sense of urgency.

The company is big in supporting the communities and they have five focus areas:
communities; diversity; equity and inclusion; people values; human rights; and The
Coca-Cola Foundation.
2. The Implementation of Management Accounting

The Coca-Cola Company is an extremely huge multinational companies that

employs hundreds of thousands of people. They do the most by manufacture, distribute
and market their products to the masses. It only makes sense if they also have complex
management accounting systems that could manage a company at such a scale. There
are many systems that the company employs to solve problems and allow for the
process of the different aspects of the company. These systems are discussed as
follows:

2.1 Process Costing

Process costing is a system that is often employed by companies that produce

similar or identical units of a products or services and Coca-Cola falls into that
category. An important aspect to process costing is to value inventories which includes
determining how many units of the product that the company has by the end of the
period. The way process costing works is by accumulating all the costs incurred in
order to manufacture the product in accordance to the various processes it takes to
complete. In the case of Coca-Cola, they would divide the processes into making the
drinks, bottling the drinks, labeling the bottles, packing the bottles, and so on.

By using this system, Coca-Cola is able to track its products and the things that
go into their products which are direct materials, direct labor and factory overhead and
divide them into stages of processes. The first process is to concentrate and
manufacture the syrup. Here, they mix all the different ingredients for the drinks such
as the water, sugar, and sweeteners. The next process is to add the carbon dioxide that
makes Coca-Cola a carbonated drink. The third process is to pack the mixed drink into
the several different sizes of plastic bottles, glass bottles and cans that they have.

This way Coca-Cola is able to track the costs of each process and the
accumulate all the costs. Companies that use process costing tend to use standardized
productions and they would usually produce homogenous products in which their
products are identical all across the categories. This way, not only is Coca-Cola is able
to manufacture their products quickly, but they are also able to record their costs
efficiently. Using process costing would group all the processes together and it would
be convenient for cost tabulation.

2.2 Just-In-Time

Just-In-Time or often shortened as JIT refers to a system that can be

implemented in both manufacturing and inventory. It is a system that allows the
company to minimize the amount of inventory it holds while also increasing efficiency.
Companies that use JIT trues to have their inventories as close as possible to the time
they are needed. The Coca-Cola Company adopts this method in order to reduce costs
and to also speed the process of getting the finished products to customers.

In Coca-Cola’s case, the company employs this system in order to improve

quality, increase efficiency in manufacturing and decrease delivery times. Coca-Cola’s
buyer-supplier relationship also improve due to the use of JIT. Using JIT, it is able to
choose the supplier the best service but not only that, they could also save money on
inventories. Considering that Coca-Cola has a large purchasing power, it is not difficult
for it to adopt JIT. As previously mentioned, Coca-Cola has hundreds and thousands
of employees as well as hundreds of bottling partners, in that case having JIT is very
beneficial for them.

Using the JIT system means that Coca-Cola would have their suppliers deliver
their materials just in time for the them to be used. This lessens the need for large
inventory storage and thus ultimately reducing costs. This is the reason why having a
good supplier-buyer relationship is important and choosing the highest quality supplier
is also imperative. Their supplier needs to be able to deliver the service that the
company needs and at the right time. The reason is because if the supplier delivers them
too early then there would be problems with the overload of inventories but if they
deliver too late there would be problems with lagging behind schedule.
 A Coca-Cola plant in Pakistan started shifting to use the JIT system in 2017.
Previously they had used a system where they bought raw materials in bulk but has
since changed to JIT where the materials are only kept for 4-5 days. Due to this change,
they are able to make a significant decrease in their costs and number of warehouses.
It is a very effective change that they had implemented. Whenever the system is not
fast enough to meet the demands this Coca-Cola plant would coordinate with other
plants and have them ship their finished goods to meet the demands in their area,
allowing them to operate as usual.

2.3 Activity-Based Costing

Activity-Based costing or often abbreviated as ABC, is a system to record costs

in a manufacturing company. This system is made in order to improve the quality,
relevance and timing of cost information. In ABC, tracing is more emphasized
compared to allocation and drivers are needed in order to identify the costs for each
activity. The activity drivers used to assign costs to cost objects in ABC could be either
unit and non-unit-based activity drivers.

For the Coca-Cola Company, ABC is used both allocate the costs of their
manufacturing activities to the cost objects and also to evaluate the differences between
their products; between the worldwide and localized products. They are able to identify
the activities that are useful for the company and activities that cost too much and thus
need to be cut or improved.

As mentioned above, Coca-Cola as a company has three main activities which

are manufacturing the syrup, blending and packaging. Therefore, from this it can be
inferred that Coca-Cola uses ABC for their cost assignment. The prices of the drinks
Coca-Cola sells are also determined by the cost of each activity and how many
activities it takes to complete the product. Furthermore, Coca-Cola also uses ABC to
budget their costs. Knowing the approximate number of activities and cost for each of
them allows Coca-Cola to produce a more accurate budget for their company.
3. Discussion

As one of the largest manufacturing and distributing companies in the world;

in terms of size, sales, scope and number of employees, Coca-Cola needs to employ
the correct and suitable management accounting systems in order to be able to run
properly. As they are a company that does both manufacturing and distributing, they
must be able to employ the correct system for both while also using their size to their
advantage instead of having it hinder them.

Coca-Cola using JIT is a very smart decision as a company that size with a high
level of demands would end up spending too much money on warehouse and inventory
storage had they used the traditional method of keeping inventories. This can be seen
in the Pakistan Coca-Cola plant where, prior their change in 2017, they had bought
their raw materials in bulk and end up spending too much on warehouses and storage.
Employing JIT is an immensely better solution as they are able to efficiently cut down
costs. They have also taken advantage of their supplier and customer alliances as
without this, having a JIT system would be a lot more difficult.

As for process costing, it is no brainer that Coca-Cola would choose that system
considering that they produce homogenous products. Job costing would be out of the
question for them and would end up making their costs and process a lot less efficient.
However, during the advertising campaign where they partner up with famous
celebrities and make special edition products, they may have to switch to that method
for the packaging activity. This would allow them to make suitable packaging for the
special events.

It is also very suitable for The Coca-Cola Company to employ activity-based

costing. There is no reason for them not to. They are a huge and profitable company
and thus have resources to employ a more complex system than the traditional costing
system. They have utilized the money and resources they have to use a costing system
that would generate a more efficient and accurate cost analysis. They would be able to
hire the right people to carry out this system. Using the traditional may lead to
inaccuracies in the cost calculation and such errors would snowball into a huge problem
for large companies like Coca-Cola. ABC on the other hand is able to distinguish the
cost allocation needed for different types of activities instead of using a single
estimated amount. Although ABC takes more time and is more complex, this is not too
much of a problem for a company the size of Coca-Cola.
4. Conclusion

In conclusion, Coca-Cola in general have employed the correct management

accounting system to cater to all their needs. This goes without saying though as the
company would not have been able to get to this size had they not chosen the correct
system. Without that, the company would face a lot of difficulties with their
manufacturing, inventory system, and costing.

The three management accounting systems mentioned here cover the different
areas of the company; JIT for purchasing and inventory, process costing for
manufacturing and ABC for costing. Each system play they own role and together they
build Coca-Cola for what it is today—a billion-dollar company that has taken over
most of the beverage industry.

There will always be room for improvement for Coca-Cola and perhaps later
on they will figure out a better management accounting system that suit their needs.
However, right now systems that they employ seem sufficient in managing all their
activities.
References

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