Running head: FLEXIBLE BUDGETING

Flexible budgeting of Coca-Cola Company [Name of the Writer] [Name of the Institution]

FLEXIBLE BUDGETING Company Name: COCA COLA Flexible Budget for 2013
INCREASE IN SALES 2% INCREASE IN SALES 5%

INCREASE IN SALES 10 %

CONTENTS In Millions of USD (except for per share items) Total Revenue Cost Of Goods Sold Gross Profit Selling/General/Admin. Expenses, Total Other Operating Charges Operating Income Interest income Interest expense Equity income (loss) net Other income (loss) net Income Before Tax Income Tax Consolidated Net Income

Year 2013 12 12 months months ending ending 2011-12-31 2013-1231 46,542.00 47472.84 18,216.00 18325.296 28,326.00 29147.544 17,440.00 732 10,154.00 483.00 417.00 690.00 529.00 11,439.00 2,805.00 8,634.00 17,788.80 746.64 10,612.10 483.00 417.00 690.00 529.00 11,897.10 2,917.33 8,979.77

Year 2011

Year Year 2013 2013 12 12 months months ending ending 2013-12- 2013-1231 31 48869.1 51196.2 18489.24 18762.48 30379.86 32433.72 18,312.0 0 19,184.00 768.6 805.2 11,299.2 6 12,444.52 483.00 483.00 417.00 417.00 690.00 690.00

529.00 529.00 12,584.2 6 13,729.52 3,085.83 3,366.67 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) Fixed Cost (70% of COGS) Tax %age of 2012 Selling/General/Admin. Expenses, Total %age of 2011 Other Operating Charges % of 2011

5464.8 12751.2 24.5213742 5 37.4715310 9 1.57277297 9

5574.096 12751.2

5738.04 12751.2

6011.28 12751.2

FLEXIBLE BUDGETING 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 12 months ending 201212-31 48,017.00 3% Year 2011 12 months ending 201112-31 46,542.00 33% Year 2010 Year 2009 12 months 12 months ending 2010- ending 2009-1212-31 31 35,119.00 30,990.00 13%

Sales Growth Rate

FLEXIBLE BUDGETING Answer No 2:

COMPARISON OF REVENUE GROWTH AND EXPENSES GROWTH Year 2011 12 months ending 2011-12-31 46542 483 690 529 48244 Year 2010 12 months ending 2010-12-31 35119 317 1025 5185 41646 Year 2009 12 months ending 2009-12-31 30990 249 781 40 32060

Sales Interest income Equity income (loss) net Other income (loss) net Total Revenue

Cost Of Goods Sold Selling/General/Adm in. Expenses, Total Other Operating Charges Interest expense Income Tax Expense Total Expenses

18216 17440 732 417 2805 39610 Year 2011 12 months ending 2011-12-31

12693 13158 819 733 2384 29787 Year 2010 12 months ending 2010-12-31 30% 18%

11088 11358 313 355 2040 25154

Growth Rate Of Revenue Growth Rate Of Expenses

16% 33%

FLEXIBLE BUDGETING 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%

FLEXIBLE BUDGETING 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 cant be taken easily. PEPSI CO In Millions of USD (except for per share items) Revenue Percentage Change 52 weeks 53 weeks 52 weeks 52 weeks ending ending ending ending 2012-12- 2011-12- 2010-12- 2009-1229 31 25 26 65,492.00 66,504.00 57,838.00 43,232.00 -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 Married Filing Jointly or Qualified Widow(er) $0 $17,400 $17,401 $70,700 $70,701 $142,700 $142,701 $217,450 $217,451 $388,350 $388,351+

Income Tax Rate

Single

Married Filing Separately

Head of Household

10% 15% 25% 28% 33% 35%

$0 $8,700 $8,701 $35,350 $35,351 $85,650 $85,651 $178,650 $178,651 $388,350 $388,351+

$0 $8,700 $8,701 $35,350 $35,351 $71,350 $71,351 $108,725 $108,726 $194,175 $194,176+

$0 $12,400 $12,401 $47,350 $47,351 $122,300 $122,301 $198,050 $198,051 $388,350 $388,351+

FLEXIBLE BUDGETING 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 Companys stock are highly advised to buy it as soon as possible. The company is at a high stable stage.

FLEXIBLE BUDGETING 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