Executive Summary Coca-Cola
Coca-Cola is a household name because is produces some of the best soda on the market. They produce many sodas such as Diet Coke, Sprite, Fanta, etc. It was established in 1886, 132 years ago. It has been said that Coke only sold 25 bottles of soda in their first year of business. Now they bring in a net income of $1.25 billion annually. Even though Coke does not consistently create new products, they do have research and development costs due to the varying recipe dependent upon the country. In order to get these flavors right, they need to research a combination of flavors that will appeal to the new culture.
Recently, Coke has changed the design of their Diet Coke cans. Coke does not produce all of their products in the same facility. The top-secret formula for their syrup is produced at a separate facility; then it is shipped to the bottling facility. Since there are high tariffs on sugar, it more cost efficient for Coke to use high fructose corn syrup. A large amount of Coke’s cost of goods sold comes their cost of the liquid and bottles as well. They must purchase a large amount of these ingredients and plastics in order to make the finished product. These costs would be considered inventoriable product costs because they are used to make the final product. Once the product is made, the Coca-Cola cans and bottles are put on trucks for distribution. There are multiple Coca-Cola bottling facilities across America. The distribution costs can be considered a period cost because it is not related to the production of the soft drinks. Having many bottling faculties will help decrease distribution costs by decreasing the distance trucks have to travel. Another period cost that Coke faces is its advertising costs. One of Coke’s marketing strategies is to cut deals with larger business so that they will only carry their line of drinks. This can help gain market share against a rival company such as Pepsi. After drinks are distributed, Coke has a customer service center that helps with any needs post-distribution.
How it works
Coke is a perfect example of a company with different cost objects. Each and every drink that they produce should be its own cost object. Sprite could never get mixed up in the production with Fanta in the production line thus it is important to keep the costs for these two products separated. A direct cost of producing Sprite or Fanta would be the syrup and other ingredients that go into making it. An indirect cost might include the property taxes for the facility. Coca-Cola is one of the largest and longest lasting companies in America. They are constantly changing their value chain in order to grow as a business and keep up with the times. It is not easy for a company to stay in business for 132 years.