Cost Analysis of Coka Cola Presentation

Cost Accounting Presentation

1. Cost Analysis of Coca cola Presented by; Bilawal Saleem Danish James

2. Introduction In this project we will discuss about the establishment of new business or a new product. We will have brief analysis of cost occurring in producing a specific product of a company. In this regard we will be able to have brief proper cost analysis of that product.

3. Element of Cost Specific function (or a group of functions) which is considered a specific entity for the purpose of estimating, controlling, and reporting costs . Material Labor FOH

4. Material Direct: Potato’s, Masalas, Packets Indirect: Machinery, Gas, Oil Labor Direct: Salary, Wages, Benefits Indirect: Salary of supervisor, Training and employee welfare FOH Rent, Taxes, Promotion, Communication expenses

5. Hypothetical Data for Coke 500ml Bottle   Note : Sale Price of 500ml Bottle of Coke is 50 Rs .   No   Description   Amount   1   Opening Stock   10,000   2   Closing Stock   8,000   3   Net. Purchases   9,000   4   Direct Labor   1,000   5   FOH   3,000   6   OP work in progress   40,000   7   Closing work in progress   20,000   8   Op Finished Goods     30,000   9   Closing Finished Good     15,000

6. CGS Statement clearly shows that company bearing cost of 50,000 in the manufacturing process .   Add: OP Stock 10,000 Purchases 9,000 Less: Closing Stock (8,000) Material in Use 11,000 Direct Labor 1,000 Prime Cost 12,000 F.O.H 3,000 Total Factory overhead 15,000 Add: OP Work in Progress 40,000 Less: Closing work in Progress (20,000) 20,000 Cost of Goods to be Manufactured 35,000 Add: OP finished goods 50,000 Less: Closing Finished goods (35,000) 15,000 Cost of goods Sold 50,000

7. Unit Cost Unit costs include all fixed costs, or overhead costs, and all variable costs, or direct material costs and direct labor costs, involved in production . By using the Formula, we found the unit cost which is Rs . 25. Unit Cost = Unit Cost = Unit Cost = 25 Rs .  

8. Economic Order Quantity In corporate finance, economic order quantity (EOQ) is the order quantity that minimizes the total holding costs and ordering costs . For company, after applying the appropriate formula, EOQ come as 1,267 units . EOQ =   EOQ=   EOQ=   EOQ = 1267 units.  

9. Inventory optimization A fully automated demand forecasting and inventory optimization system to attain key inventory optimization metrics. Reorder point The reorder point (ROP) is the level of inventory which triggers an action to replenish that particular inventory stock. It is a minimum amount of an item which a firm holds in stock, such that, when stock falls to this amount, the item be reordered Reorder point = Max. Consumption x lead time = 2,000 x 6 =12000 units

10. Maximum level   Maximum level is that level of stock, which is not normally allowed to be exceeded. Maximum Level = Order level – minimum consumption x lead time = 12000 – 1800 x 6 = 12000 – 10800 = 1200 units . Minimum Level: Minimum level or safety stock level is the level of inventory, below which the stock of materials should not be fall . Minimum Level = Order level – average consumption x lead time = 12000 – 1900 x 3 = 12,000 – 5700 = 6,300 units.

11. Danger Level Danger level is a level of fixed usually below the minimum level. When the stock reaches danger level, an urgent action for purchase is initiated. Danger Level = Average consumption x emergency time = 1900 x 1 = 1900 units.

12. Marginal costing income statement After the creation of CGS statement and calculation of EOQ, order level, minimum level etc., now we need to calculate the profit earned by the company through income statement. We will use the marginal costing technique to calculate the profit earned by the company. Description Amount ( Rs ) Sales (50x1800) 90,000 Less : Variable Cost Rent, rates, and taxes 7,000 Sales, promotion 2,000 Advertising 3,000 Technical Services 1,000 other Expense 500 ( 13,500) Contribution Margin 76,500 Less: Op &admin. Expense Rent, rates, and taxes 8,500 Product Transportation 9,000 Salaries, wages and Benefits 13,500 Inventory maintenance Expense 4,500 Research & Development 3,000 (38,500) Net . Profit 38000

13. Break-even analysis Break-even point of a company is the point where revenue becomes equal to the cost. Company doesn’t generate any profitability. At this point, fixed cost of the company is equal to Contribution margin. Two methods to calculate: Break-even sales in Rs . Break-even sales in units .

14. Break-even sales in unit Break Even = To Find CM per unit: CM Per Unit = Sales Price per Unit – VC per Unit CM Per Unit = 50 – 7.5 = 42.5 Now Break Even = Break Even = units.  

15. Tabular Form Sales (50 x 905.88) 45,294 Less: VC (7.5 x 905.88) (16794.1) Contribution Margin 38,500 Less: FC (38,500) Net. Profit

16.   Break-even Sales in Rupees   Break even sales = 50 x 905.88 = 45,294 Tabular Form Sales (50 x 905.88) 45,294 Less: VC (7.5 x 905.88) (16794.1) Contribution Margin 38,500 Less: FC (38,500) Net. Profit 0

17. Targeted profit We assumed that our company wants to earn targeted profit of 1,00,000 To earn that profit how many no. units we need to sell to earn that amount of profit. Targeted CM – Fixed Cost = Targeted Profit Targeted CM – 38,500 = 100,000 Targeted CM = 100,000 + 38,500 Targeted CM = 1,38,500

18. Best for target profit in units = = = 3258.8 units Tabular Form Sales (50 x 3259) 1,62,950 Less: VC (7.5 x 3259) (24442.5) Contribution Margin 138507.5 Less: FC (38,500) Net. Profit 100,000 Hence, its been proved that we need 3259 units to sell to earn the required profitability which is 100,000.  

19. Conclusion we have selected product Coke 500ml and then we have evaluated the costs of it. We have calculated the Cost of Goods sold statement to find the total cost incurred on production. Then we also found the EOQ of manufacturing firm. Then we decided to find the most important thing Break-even point of company which helped us knowing that if the company will only be having sales of 45,294 then with the same cost then there will be no profit for the company. On the other hand we also learnt how to find the targeted profit which was 100,000 in a specific period then we should do sale of at least 3259 units with same cost. That would help us to earn profit of 100,000