The business environment faces a lot of unprecedented occurrences; hence for most large organizations, more emphasis is placed on ensuring they minimize their production costs. Financial management in an organization begins with a focus on regulating the funds directed towards each process in the production of goods and services. The issue of cost management is significant for all businesses since it forms a basis for how the industry will oversee its cost usage in the business environment. For large manufacturing and packaging companies, the initial costs of producing a single item are usually high due to low capacity production. This paper aims to look at what Pepsi company provides or packages, its production process, cost objects, costs incurred in its operation, and the costs used in computing the value of goods produced.
Pepsi Company has been identified as the second-largest beverage manufacturer, especially for soft drinks globally. The company is also involved in the food industry and sells other products such as corn chips, tortilla chips, potato chips, snacks, bottled water, soft drinks, and other nutritional products (Pepsico, 2020). The company’s website iswww.pepsico.com, where it posts all information regarding its products, brands, upcoming news, and investors. The company’s website serves to provide more information regarding the company’s activities as well as other goods and services it offers. The company mainly produces foodstuffs to about 53% of its total operations, while 47% is for beverage production. The company has different brands that operate under its logos, such as Mountain Dew, Diet Pepsi, and Doritostortilla Chips, Mirinda, and Pepsi Max, Ruffles potato chips, Quaker foods, and snack amongst other brands (Pepsico, 2020).
Despite being involved in the production of products, Pepsi also carries out packaging and recycling works. The company is its sole packager for its soft drinks and bottled beverage products. However, environmental concerns have probed the company to come up with initiatives to reduce the pollution caused by recycling the used bottles and coming up with ideas to launch green bottles. The company has ensured that its packaging processes are meticulous in promoting the sale of its numerous brands. Through the growth of the company and the use of technology in its initiatives, packaging has proven to cut costs for the company as well as increase its brand awareness (Byrne, 2018).With the notion that brands’ competitive nature is to acquire customers, a study on both Pepsi and Coke soft drink companies revealed that most of the emphasis that the companies place is on brand promotion and customer loyalty (Sheth, 2019).
The manufacturing process
The production of soft drinks in the manufacturing company begins with the identification of ingredients needed for the procedure. The main ingredients for making Pepsi are sugar, natural flavours, citric acid, caramel colour, carbonated water, caffeine, and high fructose corn syrup. Carbonated water and sugar account for at least 95% of the drink. Flavouring elements such as emulsions are also to make the drinks more pleasing.
The first process in the production process entails water processing by cleaning and clarifying the water (Pepsico, 2020). Water accounts for nearly the whole component in drinks. Hence critical measures are undertaken to ensure that it meets the required quality standards. Water contains so many impurities, microorganisms, and suspended particles that affect the taste of the drinks. Water cleaning entails coagulation, filtration, andchlorination. During condensation, the water is mixed with gelatinous precipitates to trap the suspended particles. After concentration, the water is filtered to remove excess impurities. In chlorination, chlorine compounds are added to the filtered water to disinfect it further (Rajat, 2015).
The second process entails further filtration, sterilization, and dechlorinating of the water. For additional removal of floc components, the water is poured through a sand filter. The water is also sterilized to remove all excess microbes that might have passed through the system. The water is further drained into a tank and treated once more with chlorine. Dechlorinating occurs next with the use of carbon filters to remove any organic materials present in the water. The water is deaerated using a vacuum pump before being passed to a dosing station. The third step involves the mixing of ingredients in the dosing station. Flavours are filled in the dosing tank as well as dissolved sugars (Rajat, 2015). After that, all components are transferred to a batch tank where they are appropriately combined in controlled conditions. The syrup and water are mixed carefully in required ratios, and carbon dioxide is pressurized into the containers to avoid aeration of the mixture.
The fourth step involves carbonation of the solution under relatively high pressure; this makes the water carbonated by creating effervescence in the liquid. The temperature of the liquid is regulated sustainably and cooled. The last step is filling and packaging of the beverage. The beverage is transferred to cans or bottles at a steady flow and filled to required levels, sealed immediately under pressure. The filled containers are stored and later packed into cartons for sale and delivery to suppliers and consumers (Rajat, 2015).
Cost objects and costs incurred in the process.
Cost objects refer to the items whose cost are separately computed or components which are assigned values independently (Spielman, 2018).Sales are observed to drift based on various reasons such as tax excises on soft drinks, campaigns, and elections, which were evident in a study on university retailers in Berkley (Taylor, 2019). The study revealed that changes in consumption heavily rely on client intake of the product at various seasons. However, according to Cornelsen and Smith, more research is needed to unveil the reasons why prices change with reference to demand based on behavioural trends (Van Doorn, 2018). Brand promotion and customer loyalty also play a role in the purchasing price of products and hence affect the overall production cost (Sheth, 2019).
For the manufacturing process of soft drinks in the Pepsi Company, the cost object identified is the packaging process.With the identification of the cost objects used in the production process, it is essential for any successful organisation to manage and strategize how they will regulate various costs in response to the business environment (Blocher, 2019).Cost objects are further classified into a direct, indirect, direct variable and indirectly variable costs. The direct fixed costs incurred in the packaging process include the labour that is used, utility bills, and packaging materials used. They are costs that can be directly related to the outcome of the product (Spielman, 2018).The cost objects involved in production will determine the end price of the commodity hence the need for firms to integrate cost leadership and differentiation schemes in design and production (Blocher, 2019).
For Pepsi, the classification of various cost objects requires the use of life cycle costing to understand the cost implications of a commodity throughout its production stages until final completion (Blocher, 2019).Indirect fixed costs in the packaging process will entail storage marketing and advertising since they are associated with ensuring that the overall production and delivery of the product is efficient (Bragg, 2018). Variable costs are changing depending on the company’s production processes. Direct variable costs entail the initial production process; hence during the packaging process, the prices that will increase at the initial stages are such as packaging design and inventory. Indirect variable costs will be those that are not directly related to the product hence do not affect its products such as utility fees (Bragg, 2018)
There are many costs incurred in the packaging process that are not classified in the highlighted categories. In identifying the various cost objects, it is necessary to strategize the most important items that will increase the company’s financial performance and generally promote customer satisfaction (Blocher, 2019). Maintenance of packaging machines is amongst the hidden costs. Electricity fees for running the operation are necessarily an indirectly related cost (CFI, 2020). The cost of purchasing cleaning supplies, cleaning services, cleaning machinery, insurance, and wage benefits for labourers is amongst the hidden costs. Rental fees, marketing costs, promotion fees, advertising, audit fees, sales cost are some of the period expenses incurred in the packaging process (CFI, 2020). Shipping, the delivery fee for package materials, commissions for labourers, credit facilities, and servicing of packaging equipment are also encountered.
Since Pepsi is an international company, its essential for the management of both its direct and indirect costs to be evaluated on a global scale, the global business environment varies in each geographical location based on the economies of scale (Blocher, 2019). The direct costs can be bluntly related to the development of a product and include materials and labour (Spielman, 2018). Therefore to get the unit cost of producing a single item, evaluation of the input of raw materials and energy amongst other resources has to be evaluated. Due to the high initial production costs of a commodity, the product’s price is made up of both direct and indirect expenses (Bragg, 2018).Incidental damages may also be included in the overall product cost but may decrease and be removed over time when production is more sustainable. Variable expenses are rarely included in the total product costs unless they form the main component of a production process.
Conclusion
The new goal for the Pepsi Company in 2020 is to increase its sustainability, opportunity, and mobility status. In its recent expo, the company revealed that it had planned strategies to produce even better products and services for all its consumers. It aims to increase its brand by introducing more colourful themes and designs for its products. In the sustainability program, the company aims to increase the recycling program for its bottled products. All these strategies put in place will affect the cost of production; hence the company has established even better policies to ensure that it is control of its manufacturing and packaging processes.
References
Bragg, S. (2018, 12, 24). The difference between direct costs and indirect costs. Retrieved from Accounting tools: com/articles/the-difference-between-direct-costs-and-indirect-costs.html”>https://www.accountingtools.com/articles/the-difference-between-direct-costs-and-indirect-costs.html
Byrne, E. P. (2018). Single-use plastics versus consumerism in the case of snack food packaging, evolving societal norms, culture, and tipping points. International Sustainable Production and Consumption., 1-27.
CFI. (2020). Product Costs. Retrieved from CFI: https://corporatefinanceinstitute.com/resources/knowledge/accounting/product-costs/
Murphy, C. (2019, 9, 12). How are Direct Costs and Variable Costs Different? Retrieved from Investopedia: https://www.investopedia.com/ask/answers/041515/what-difference-between-direct-costs-and-variable-costs.asp
Pepsico. (2020). About the company. Retrieved from Pepsico: https://www.pepsico.com/about/about-the-company
Rajat. (2015, October 27). How is Pepsi Manufactured? Retrieved from Food Ravel: foodravel.com/2015/10/27/how-is-pepsi-manufactured/
Sheth, J. K. (2019). Do brands compete or coexist? How persistence of brand loyalty segments the market. European Journal of Marketing, 2-19.
Spielman, E. (2018, 4, 20). Direct Costs vs Indirect Costs: Understanding Each. Retrieved from Business News Daily: com/5498-direct-costs-indirect-costs.html”>https://www.businessnewsdaily.com/5498-direct-costs-indirect-costs.html
Taylor, R. L.-B. (2019). Soda Wars: The effect of a soda tax election on university beverage sales. Economic Inquiry.Vol. 57 Issue 3, 1480-1496.
Van Doorn, M. B. (2018). The Pepsi Paradox: A review. Food Quality & Preference. Vol. 65, 194-197.
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