Cost information for decision making

Introduction The topic of strategic management has been of great importance over the years. This is because strategic management helps a company craft its short term and long term goals, device means and ways of achieving those goals and objectives, and also providing a blue print of how the company ought to evaluate its achievements according to the set targets (Antony Robert, 2011).Advertising We will write a custom essay sample on Cost information for decision making specifically for you for only $16.05 $11/page Learn More This paper presents the coca cola company. It discusses the various areas of strategic management and also touches on the management accounting information. The Company Coca-cola Company is the global leading manufacturer, distributor and marketer of soft drinks. The Vision of the company is to ‘bring to the world a portfolio of quality beverage drinks and brands that satisfy people’s needs and desires.’ The mis sion statement of Coca-Cola Company is: ‘To refresh the world, to inspire moments of optimism and happiness, and to create value and make a difference.’ The objectives of Coca-Cola Company are to maintain a global leadership in the supply of non-alcoholic beverages and other non-soda drinks through high production methods that promote the name of the company as a household brand. The strategies of the company are to build on the fundamental strengths in marketing and innovation, driving increased efficiency in system interactions and generating new energy through core brands that focus on health and wellness. In strategic management, the vision statement indicates where the company visualizes itself as at a future date. This usually acts as a beacon for continued efforts to improve and develop to the highest standards possible (Szulanski, 1996). The vision of Coca Cola Company therefore corresponds with the definition provided in the text book. This is because the visio n clearly indicates that the company aims to develop quality brands that aim at satisfying people’s desires and as such the company is in continual search form innovations in order to ultimately achieve this. The mission statement presents the company’s reason for existence. It is the mission statement that indicates the products that are offered to the consumers and as such, since the mission statement of Coca Cola Company is to refresh people, and inspire happiness, the statement is congruent to the definition since through consuming the products people get entertained and are able to quench thirst through drinking of it products.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The objectives of the company are to maintain a global leadership in the supply of non-alcoholic drinks. This is well put also since the company strives to remain ahead of the competitors and this, al so, corresponds to the definition given in the text book. A strategy presents a combination of measures, both short and long-term which are aimed at ensuring that a company remains on course to achieving the mission and the objectives set out. Coca cola company strategy is also well inclusive of the definition given in the text book. Management accounting information The modern day organizational management is surrounded by numerous factors which present an environment under which the company ought to operate in. These factors necessitate the management to device means and ways of ensuring that the organization remains on track in the quest to achieve the set goals and objectives (Ahmed, 1992). To enable the management make such decisions, there is the essence of management information such as management accounting information. The essence of management accounting information is to provide relevant information for the making of rational decisions by the management without which the decisions would be termed as gambling. The various management accounting information are discussed in the ensuing text. Budgeting and forecasting Budgeting and forecasting is the management accounting information which aides a company in planning for the future action plans in the course of its mission accomplishment (Antony Robert, 2011). The Coca Cola Company can use forecasts and budgets in order to make sound and better decisions. This is because the use of budgeting provides a financial platform where the company’s funds are directed toward the profitable courses such as expanding to new markets. This will help the management to also plan for the future cash needs so as to remain afloat bearing in mind the current dynamics in the financial markets. Ratio analysis Ratio analysis is the process in which the company’s management carries out analyses on the financial information presented in the financial statement in order to establish various trends in the various elements of the financial statements. Ratio analysis is a process that is usually completed after each end of period reports and seeks to give a clearer picture of the state of affairs of the company in regard to the financial statements. The ratios can be used to determine the liquidity position of the company, the ability of the company to generate sales from the inventory, among other uses. The coca cola company can use ratio analysis to evaluate several factors in relation to its profitability. First ratio analysis can be used to tell the management whether the company is operating within the set profitability margins, or whether the company has liquidity issues hence enabling the management detect and make corrective measures early enough.Advertising We will write a custom essay sample on Cost information for decision making specifically for you for only $16.05 $11/page Learn More Variance analysis Variance analysis is done in order to compare betw een the planned expenses and the actual ones. Companies carry out variance analysis in order to establish the degree of variation between the actual and the planned/ budgeted expenses and hence reconcile the differences. The importance of variance analysis to Coca Cola Company is ti enable it to track its expenses against the budget. This is an important aspect since cash is usually a scarce resource and hence limited. Proper variance analysis will indicate areas where there is over expenditure therefore prompting the management to take corrective actions in order to ensure efficient use of company’s funds. Analysis of the recent annual report of Coca Cola Company The recent financial information for Coca-Cola Company includes the income statement, the statement of financial position, and the cash flow statement. In additional to these three fundamental financial statements, the company has also provided other management accounting information such as the financial ratios, an alyst’s ratings and the various financial forecasts. These ratios include the growth rates that indicate the company’s comparison with the industry average as well as the comparison with the SP 500 benchmark. The importance of these ration is that they will be useful key performance indicators and will be necessary when evaluating the performance of the company against the u=industry average and against the SP 500 standards. The management will gain insightful knowledge and will be able to make decisions that are relevant and timely in order to enable the company continue remaining the global leader in its field. The information that is reflected in the various financial statements is also very useful to the management. This is because the information is presented in quarters. This is an important aspect of management accounting reporting system since it offers a clearer picture and a breakdown of the performance through the different quarters. The importance of this i s that the management is able to compare the performance of the company through different times and as such make the proper decisions. The accounting information also includes a presentation of a five year forecasts of the anticipated performance. This offers a very crucial piece of information with which the management can use to measure and control the performance of the company against the set targets.Advertising Looking for essay on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The forecast presented shows both the company’s forecasted performance over the period as well as the SP 500 indication of the industry over the period. The management of the coca-cola company therefore has sufficient information that is necessary to make better decisions both in the present and in the future. Activity Based Costing The area of overheads allocation by businesses has been a pertinent issue among many cost accountants. This is because of the nature of overheads. In practice, over heads are the costs incurred which cannot be directly traced to the expense item in the organization. As such, they are referred to as over-heads. There are several methods that have been used to carry out the indirect costs allocation over the times. The two most common methods are the traditional absorption costing and the activity based costing. This part of the paper discusses the activity based costing and in the second part, it presents the ‘ABC paradox’. Activity ba sed costing is a costing method that is used to allocate indirect costs to costs objects such as activities, products, customers etc (Cooper Kaplan, 1988). This is achieved based on the activities performed on the cost objects. The various organizational activities which are referred to as resource consumption drivers are allocated the indirect costs based on the resources that they consume. This is a modern way of tracking costs by the management more so the indirect costs since the activities which consume the resources are allocated the overheads in a more precise manner. The first step in determining the overheads costs of these activities is to establish the activity centers or the cost pools (Cooper Kaplan, 1988). Once this is done then the unit cost of the various activities is calculated. The cost of an activity is then assigned to the organization’s products so as to obtain the overhead costs per activity. To obtain the total overheads costs, the unit cost per acti vity is then multiplied by the number of activities. Advantages of Activity Based Costing This indirect costs allocation method is known to possess numerous advantages that make it a very common costing method among the various organizations in the business arena. The first and the main advantage of activity based costing is that it provides accurate information on the cost centers and the costs activities through allocation of the indirect costs on the basis of resource usage (Barry, 2003). This in effect helps management identify the various costs activities and therefore enabling them to make decisions that are based on accurate knowledge. Activity based costing is in effect a very useful tool when doing process improvement. This is because of the ability of the method to assign costs in an accurate manner. As such the organization is able to identify the profitability of specific products or services and this can be a very useful piece of information in situation where the compa ny wants to tailor-make the products through differentiations. Activity based costing can also be useful in future planning of the products. This is possible because the management has adequate and accurate information that is product based and as such planning for future products becomes an easy task with activity based costing. This can further help in the pricing of the products since the management has the full costs of the products being launched and hence is able to set profit margins with a high degree of accuracy. This method is however characterized by various shortcomings. The first disadvantage of activity based costing is that it can become time consuming more so when it all the organizational activities have to be allocated costs. The management therefore finds it rather hard to replace the traditional absorption costing method with the activity based costing since it is a tedious process when it comes to activity costing. ‘The Activity Based costing paradoxâ€⠄¢ While the activity based costing is a very effective method of overhead costs allocation, many organizations have not adopted the technique in their costing methods as it is anticipated. This forms the basis of the activity based costing paradox. The question that is therefore put forward by many is what is the genesis of ABC paradox? The ensuing text discusses the ABC paradox. The activity based costing paradox emanates from the fact that the costing method has won many accolades in the theoretical framework of cost accounting yet it remains unused in many practical applications since it has been adopted by very few organizations. Many academic and scholarly contents have hailed activity based costing as the ultimate answer to the problem of overheads allocation among many business organizations. This notwithstanding, the technique continues to remain on paper while organizations continue to use the traditional costing methods such as the absorption costing. There are several pr actical reasons for this paradox. First it is evident that the activity based costing model is too difficult to implement in an organization. This emanates from the stages of activity cost ascertainment that have to be followed in order to arrive at the specific activity cost. Most firms regard this as a tedious and an inefficient process since time and resources may be wasted in the quest to arrive save more. The implementation of activity based costing method is a costly process and as such it becomes impossible for small firms to adopt such an expensive and complex costing method yet the operation of the firm are few and manageable with a simpler system. On the part of a large organization, the organizations are too large for the management to be able to fully oversee every activity of the organization and assign costs to it. The costing using ABC therefore becomes an inconvenient method of costs allocation since the management of the organization ought to have the whole picture of the organization and view it as a unit. It becomes rather complex when a large organization has to be defined by the small activities and the costs associated to these activities. The activity based costing also faces another huge hurdle when it comes to the implementation of the model. First most of the organizations’ top management concentrates on financial information and the financial accounting and pay less interest of the cost accounting which is internal based. As such the implementation of the model among many organizations becomes impossible since the management fails to prioritize the technique. Furthermore, successful implementation of the model requires a comprehensive knowledge of the organization and as such, it may bring a lot of challenges when it comes to developing and applying the model for the utilization of a large organization. The model also requires a continuous recording of the various activities which are incurring the overheads costs. This can be a tedious and a non productive process and may face a huge resistance from many employees. The cost-benefit analysis of Activity based costing with relation to the other costing methods also reveal that there is not much benefit after all. This is because the maintenance of the ABC model in an organization is very expensive yet it only offers the allocation of overheads costs which in most cases do not form major part of the organizational total costs. References Ahmed, R.-B. (1992). The new Foundations of Management Accounting. New York: Quorum Books. Antony, A. A., Robert, S. K. (2011). Management Accouting: Information for Decision-Making and Strategy Execution. New York: Quorum Books. Barry, E. L. (2003). Management Accounting Demystified. New York: McGraw Hill. Cooper, R., Kaplan, S. (1988). Measure costs right: Make the right decision. Harvard Business review , 96-103. Szulanski, G. (1996). Exploring Internal Stickiness:Impediments to the Transfer of Best Practices within t he Firm. Strategic Management Journal , 27-44. 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