Britivic: Accounting Policies - Case Study Example

Case study on how both cost and management accounting can serve the brand management at BRITVIC. Objective The primary objective of the report is to analyze the strategies adopted in cost and management accounting domains by Britivic to sustain its brand management even during the crisis of recession. Company Profile www.britvic.com Britivic is one of the two leading soft drinks businesses in Great Britain. Britivic has devised strategies creating new tastes in soft drinks promoted through effective branding techniques with utmost dedication to satisfy the customer needs and delighting customers with good service and commitment.Britivic has good track record for innovation and the same is evident through successful new products developments, such as J2O and Fruit Shoot etc.Innovation strategies have helped Britvic to become the largest supplier of branded still soft drinks which is the most popular and e faster growing category in the soft drinks market.Britvic also emphasizes its stand as the number two supplier of branded carbonates through effective sustainability process designs.. Operational Capabilities The Group has made significant investment across its procurement, production and quality control, customer management, category marketing and distribution functions with the aim of being able to deliver a high quality product at any time or place of customer interest. http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article5689125.ece In 2006, Britvic sold 1.4 billion liters of soft drinks in hundreds of different flavours, shapes and sizes and delivers to over 4,000 customers and approximately 200,000 points of distribution. This explains the wide customer network of Britivic revealing the company's excellence in production and service capabilities. The annual turnover is around 680 million .This validates the position of Britivic as a leading supplier of soft drinks and its market share as a commodity with increased customer base. Britvic has the instilled pride to produce more soft drinks brands in its portfolio than any other UK manufacturer. This provides an insight on the effective branding strategies and promotions followed by Britivic and the effective business planning of the company's management. The company has approximately 2,700 employees based either at our main offices in Chelmsford and Sol hull or at one of seven factories and network of depots around the country. This portrays the human resource capability and strong local presence in the soft drinks market. The corporate culture of Britivic provides an amicable atmosphere for all the workers who feel great working for the company.Britivic promotes excellence and initiative and encourage the employees to be passionate about our brands and their roles. Accounting policies of Britivic Source : Balance sheet data of Britvic (2007) Investments The Company recognizes its investments in subsidiaries at cost less any provisions made for impairment. Interest bearing loans and borrowings Borrowings are stated at proceeds received less any unamortized issue costs. Issue costs of loans The finance cost recognized in the profit and loss account in respect of capital instruments is allocated to periods over the terms of the instrument using the effective interest method. Borrowing costs ]After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. All borrowing costs are recognized as finance costs in the profit and loss account in the period in which they are incurred. Foreign currencies The foreign currency transactions are recorded at the date of transaction referring the ruling rate at that instance. Foreign currency denomination of assets and liabilities will be translated on the basis of exchange rate as depicted in the balance sheet and balance sheet date will be used. All the noticeable differences are updated in the profit and loss account of balance sheet. Issued share capital Ordinary shares are classified as equity. Incremental costs may lead to new shares issue or to specific options like net tax, start from proceeds or projecting deduction in the form of equity. Dividends Dividend income is recognized when the Company's right to receive payment is established. Final dividends are recorded in the financial statements in the period in which they are approved by the Company's shareholders. Another important fact is that the interim dividends are recorded on the basis of approval period and payment period. Taxation The current income tax expense is based on taxable profits for the year, after any adjustments in respect of prior years. It is calculated using taxation rates enacted or substantively enacted by the balance sheet date and is measured at the amount expected to be recovered from or paid to the taxation authorities. Britivic - Effective Cost Accounting practices Based on the federal financial reporting, Britivic provides adequate updated information on financial standards that helps users to determine: Costs of specific programs and activities and the composition of, and changes in, those costs; Efforts and accomplishments associated with federal programs and their changes over time and in relation to costs Efficiency and effectiveness of the government's management of its assets and liabilities Specific Cost Accounting Standards devised by Britvic Britivic has set certain standards in cost accounting procedures to have accounting information in standard form and also monitors the adherence of it. These standards include Managerial Cost Accounting Concepts & Standards for the Federal Government: Statement of Federal Accounting Standards byDIANE Publishing Company 1995 -109 pages Requirement for cost accounting, Responsibility segments, Full cost, Inter-entity costs, and Costing methodology. These standards are derived on the basis of sound cost accounting concepts and allow sufficient flexibility for agencies to develop managerial cost accounting practices that are suited to their specific operating environments. It is an acceptable fact that the cost accounting standards and effective practices will help in improving the agencies knowledge level and also enhance rich experience to handle the accounts .Another important feature of cost accounting practice is to measure the costs as an integral part of measuring performance in terms of efficiency and cost-effectiveness. Britvic evaluated the service efforts with the below measures Measures of service efforts which include the costs of resources used to provide the services and non-financial measures Measures of accomplishments which are outputs (the quantity of services provided) and outcomes (the results of those services) Measures that relate efforts to accomplishments, Such as cost per unit of output or cost-effectiveness. Managerial Accounting practice by Britivic Managerial Cost Accounting Concepts & Standards for the Federal Government: Statement of Federal Accounting Standards byDIANE Publishing Company 1995 -109 pages Managerial cost accounting is the process of accumulating, measuring, analyzing, interpreting, and reporting cost information useful to both internal and external groups concerned with the way in which the organization uses, accounts for, safeguards, and controls its resources to meet its objectives. Managerial cost accounting, is often regarded as the servant of both budgetary and financial accounting and reporting as it provides assistance to systems by providing relevant information.Britivic classified the Cost information into five types namely performance measurement; cost reduction and control; determination of reimbursements and fee or price setting; program authorization, modification, and discontinuation decisions; and decisions to contract out work or make other changes in the methods of production to evaluate its financial stand and as a measure of sustainability. Britivic-Flow diagram of financial management system The below schematic diagram enlightens the 4 stages of financial management system along with the usage of Information technologies. This effective organized financial management system helped Britivic to sustain its brand image. Effective branding techniques adopted by Britivic Branding techniques are visualized with the he relative merits of each promotional concept and finally selection of the most appropriate solution is done. This is the first basic process opted by Britivic for promotion of its brand. They discuss the branding techniques to the board members, shareholders,investors in order to complement their reporting structure and investor brand experience. Major Branding Techniques include Responsibility Segment and Positioning Responsibility Segment A responsibility segment is a component of a reporting entity that is responsible for carrying out a mission, conducting a major line of activity, or producing one or a group of related products or services. In addition, responsibility segments usually possess the following characteristics: FASAB Statement of Recommended Accounting Concepts No.2 Entity and Display (May 1995). www.scribd.com Managers directly report to Top management on the accounting standards pertaining to that entity There should distinct resources and operational results from the manager's entity to differentiate themselves from other responsibility segments pertaining to the same entity. A cost center can be framed at any level of an organization and there is no hard and fast rule that it should have direct reporting to top management. Another enlightening fact is that the responsibility segment can have a cost center in its framework. Thus q responsibility segment is often considered as a unit for the performance of the managerial cost accounting. To report the cost information pertaining to the responsibility segment, the entities can adopt a centralized accounting system or a system based on segmentation. For each segment, managerial cost accounting should: FASAB Statement of Recommended Accounting Concepts No.2 Entity and Display (May 1995). www.scribd.com Define and accumulate outputs, and if feasible, quantify each type of output in units; Accumulate costs and quantitative units of resources consumed in producing the outputs Assign costs to outputs, and calculate the cost per unit of each type of output. Brand Positioning strategy adopted by Britivic. http://www.britvic.com/InvestorRelations.aspx Britvic Innovation, http://www.britvic.com/InvPresentations.aspx Britivic aims at Supporting and growing core brands by continuing to invest in strong portfolio of brands through both innovation and marketing, to ensure that they are preferred by consumers. During the period the cola market overall was impacted by the decline in licensed on-premise, while in Q108 the take-home market was impacted by a strong competitive promotional programme.Whilst Britivic maintained a focus on value there was an inevitable loss of volume share with Pepsi volume growth of 1.8% behind the cola market growth of 4.0%. However during the last 12 weeks of the period, Pepsi more than recovered its market share position delivering strong volume growth of 8.2%, out-performing the market growth of 3.1%.At the same time Britivic kept constant value out-performance. This strong post Christmas performance was the result of a clear focus on better market execution, particularly in-store, through smarter co-ordination of media and promotional spend and through the use of trade ready display units. This strategy has delivered highest ever market share of Britivic with the biggest UK . The below diagram explains the branding strategy of Britivic Conclusion The above information reveal that cost and management accounting has helped Britivic to sustain its brand image. References Books David Clutter buck, David Megginson, Chartered Institute of Personnel and Development " Making coaching Work: Creating a coaching culture ",Published by CIPD Publishing, 2005,ISBN 1843980746, 9781843980742,pg 160 "Managerial Cost Accounting Concepts and Standards for the Federal Government" Statement of Federal Financial Accounting Standards, Number 4, July 31, 1995. "FASAB Statement of Recommended Accounting", Concepts No.2 Entity and Display (May 1995). Managerial Cost Accounting Concepts & Standards for the Federal Government: Statement of Federal Accounting Standards byDIANE Publishing Company 1995 -109 pages. Web links http://www.britvic.com/InvestorRelations.aspx Britvic Innovation, http://www.britvic.com/InvPresentations.aspx Balance sheet data of Britvic (2007), Preliminary Results 29th November 2007, http://www.britvic.com/InvPresentations.aspx www.scribd.com http://www.amed.org.uk/news/amed6pp.pdf www.marketingweekconferences.com as stated by Matthew Jipps Head of Stategic Price and Promotions,Britvic Read More