hhoihioj

7/28/2019 hhoihioj

http://slidepdf.com/reader/full/hhoihioj 1/8

Running head: FLEXIBLE BUDGETING

Flexible budgeting of Coca-Cola Company

[Name of the Writer]

[Name of the Institution]

7/28/2019 hhoihioj


FLEXIBLE BUDGETING 2 Company Name: COCA COLA

Flexible Budget for 2013

INCREASE

IN SALES

2 %

INCREASE

IN SALES

5 %

INCREASE

IN SALES

10 %

CONTENTS Year 2011 Year 2013

Year

2013

Year

2013

In Millions of USD (except for per

share items)

12 months

ending

2011-12-31

12

months

ending

2013-12-

31

12

months

ending

2013-12-

31

12

months

ending

2013-12-

31

Total Revenue 46,542.00 47472.84 48869.1 51196.2

Cost Of Goods Sold 18,216.00 18325.296 18489.24 18762.48

Gross Profit 28,326.00 29147.544 30379.86 32433.72Selling/General/Admin. Expenses,

Total 17,440.00 17,788.80

18,312.0

0 19,184.00

Other Operating Charges 732 746.64 768.6 805.2

Operating Income 10,154.00 10,612.10

11,299.2

6 12,444.52

Interest income 483.00 483.00 483.00 483.00

Interest expense 417.00 417.00 417.00 417.00

Equity income (loss) — net 690.00 690.00 690.00 690.00

Other income (loss) — net 529.00 529.00 529.00 529.00

Income Before Tax 11,439.00 11,897.10

12,584.2

6 13,729.52

Income Tax 2,805.00 2,917.33 3,085.83 3,366.67

Consolidated Net Income 8,634.00 8,979.77 9,498.43 10,362.85

Assumption : Cost Of Goods Sold has

30% of Variable Cost and 70 % of Fixed

Cost

variable cost (30% of COGS) 5464.8 5574.096 5738.04 6011.28

Fixed Cost (70% of COGS) 12751.2 12751.2 12751.2 12751.2

Tax %age of 2012

24.5213742

5

Selling/General/Admin. Expenses,

Total %age of 2011

37.4715310

9

Other Operating Charges % of 2011

1.57277297

9

7/28/2019 hhoihioj


FLEXIBLE BUDGETING 3 Assumptions:

The budget is forecasted on the basis of following assumptions:

-Sales volume of 2012 is projected for 2% increase, 5% and 10%

-Cost of Goods Sold of 2012 is broken in 70% and 30% ration of Fixed Cost and Variable Cost

correspondingly.

-Selling General & Admin expenses are also increased at the rate of 2%, 5% and 10%

respectively.

Answer No 1:

The growth rate in sales of past three years is not consistent. It is given below,

Year 2012 Year 2011 Year 2010 Year 2009

12 months

ending 2012-

12-31

12 months

ending 2011-

12-31

12 months

ending 2010-

12-31

12 months

ending 2009-12-

31

Sales 48,017.00 46,542.00 35,119.00 30,990.00

Growth Rate 3% 33% 13%

7/28/2019 hhoihioj


FLEXIBLE BUDGETING 4 Answer No 2:

COMPARISON OF REVENUE GROWTH AND EXPENSES GROWTH

Year 2011 Year 2010 Year 200912 months

ending

2011-12-31

12 months

ending

2010-12-31

12 months

ending

2009-12-31

Sales 46542 35119 30990

Interest income 483 317 249

Equity income (loss)

— net 690 1025 781

Other income (loss)

— net 529 5185 40

Total Revenue 48244 41646 32060

Cost Of Goods Sold 18216 12693 11088

Selling/General/Adm

in. Expenses, Total 17440 13158 11358

Other Operating

Charges 732 819 313

Interest expense 417 733 355

Income Tax Expense 2805 2384 2040

Total Expenses 39610 29787 25154

Year 2011 Year 2010

12 months

ending

2011-12-31

12 months

ending

2010-12-31

Growth Rate Of

Revenue 16% 30%

Growth Rate Of

Expenses 33% 18%

7/28/2019 hhoihioj


FLEXIBLE BUDGETING 5 No, the Revenues and Expenses are not growing at the same rate.

The Past experience shows that,

In 2010, the Revenues increased at a larger rate comparatively to the Expenses.

In 2011, the Revenues decreased at a larger comparatively to the Expenses.

Answer No 3:

The quarterly GDP growth of American economy is as follows,

Q4 2012 GDP: (-0.1%)

A cutback in Federal military spending contributed to an economic contraction of .1%.

Q3 2012 GDP: 3.1%

The best growth rate all year! The final estimate came in at a healthy 3.1%.

Q2 2012 GDP: 1.3%

The economy actually only grew 1.3%.

Q1 2012 GDP: 2%

Shopping and housing construction, (a welcome surprise) drove growth to 2.2%.

Growth came in at 1.9%

7/28/2019 hhoihioj


FLEXIBLE BUDGETING 6 Answer No 4:

The close competitors of Coca Cola company are Pepsi Co and Dr Pepper Snapple Group.

Pepsi Co is also doing very well and its sales volume is also increasing. Since, Pepsi is closest

and best alternative of Coke, so it can’t be taken easily.

PEPSI

CO

In Millions of

USD (except for per

share items)

52 weeks

ending

2012-12-

29

53 weeks

ending

2011-12-

31

52 weeks

ending

2010-12-

25

52 weeks

ending

2009-12-

26

Revenue 65,492.00 66,504.00 57,838.00 43,232.00

Percentage Change -2% 15% 34%

How ever, the sales of Pepsi has declined in 2012, the growth rate of sales is quiet well.

Answer No 5:

Tax rates for 2012

Income Tax Rate Single

Married

Filing Jointlyor Qualified

Widow(er)

Married

Filing

Separately

Head of Household

10%$0 – $8,700 $0 – $17,400 $0 – $8,700 $0 – $12,400

15% $8,701 –

$35,350

$17,401 –

$70,700

$8,701 –

$35,350

$12,401 –

$47,350

25%

$35,351 –

$85,650

$70,701 –

$142,700

$35,351 –

$71,350

$47,351 –

$122,300

28% $85,651 –

$178,650

$142,701 –

$217,450

$71,351 –

$108,725

$122,301 –

$198,050

33% $178,651 –

$388,350

$217,451 –

$388,350

$108,726 –

$194,175

$198,051 –

$388,350

35% $388,351+ $388,351+ $194,176+ $388,351+

7/28/2019 hhoihioj


FLEXIBLE BUDGETING 7 Discussion:

The suggestion is based on the assumption of cost structure of 2012.

Variable Cost = 30%

Fixed Cost = 70%

Flexible Budgeting can give you the idea regarding the sales volume. It can explain what

sales volume will be better for you and what will be the break-even point and what sales volume

will not even cover the total cost and expenses. This is more important in the cases where the

company has high fixed cost. So it can help you in making smart decisions by telling you the

ways from which you can utilize your fixed assets more appropriately.

According to our cost structure, if company increases its sales, revenues will be increased

at a larger rate as compare to expense. Because in this situation, expenses are not directly

proportional to Cost. So a big part of cost will remain constant which will result in increasing

Net Income.

Monitoring the past trends, the Coca Cola Company is doing very well. The sales volume

is increasing every year where as the cost is controlled. Potential buyers of Coca Cola

Company’s stock are highly advised to buy it as soon as possible. The company is at a high

stable stage.

7/28/2019 hhoihioj


FLEXIBLE BUDGETING 8 References:

Google. (2013) The Coca-Cola Company, Retrieved from

http://www.google.com/finance?q=NYSE%3AKO&fstype=ii&ei=14UmUeCeFaimwAO

xGA

Steve, W., et al, (2010) “Accounting: Concepts and Applications” Cengage Learning, Retrieved

from

http://books.google.com.pk/books?id=ULnNvUDArdAC&pg=PA899&dq=flexible+budg

eting&hl=en&sa=X&ei=jtAnUf2FKMeRswaI64DgDw&ved=0CC4Q6AEwAQ#v=onepa

ge&q=flexible%20budgeting&f=false

www.coca-cola.com (2013), Retrieved from

http://assets.cocacolacompany.com/b6/f3/ecad445f4fc1819dd37e04e057ad/form_10K_20

11.pdf

http://www.google.com/finance?q=NYSE%3AKO&fstype=ii&ei=14UmUeCeFaimwAOxGA


http://www.coca-cola.com/

http://www.coca-cola.com/



hhoihioj

Documents