Break-even Analysis at Coca-cola Company

The Organization: Coca-Cola Company

Who does not know this leading beverage company? In terms of market share and brand exposure, Coca-cola (hereinafter referred to as the Company or the Organization) has the “say”. It is a very successful organization that almost everyone knows with an asset in the preceding year reaching at least $43 billion in its 2007 consolidated financial statements. Moreover, the net worth of this company is accounted at $27 billion.
As stated in its 2007 Financial report, this beverage organization is the leading name in its line of business that manufactures, distributes and markets non-alcoholic drinks, syrups as well as concentrates. Its products bearing the Coca-cola brand and other brand names under the organization’s trademarks have been sold in the United states since 1886 and with great success, are currently being sold in more than 200 countries worldwide.
The organization was incorporated as early as 1919 under the guiding laws of the United States of America, specifically in the state of Delaware. Daily, Coca-cola is serving 1.5 billion of non-alcoholic drinks to its thirsty customers.
Activities of the Organization
Generally, a multi-billion dollar company such as Coca-cola has a long list of activities. In each of its activity, no matter how small it can be in a unit basis, but since there are more than 200 countries to consider, a proper analysis must be taken into account in pursuing an activity or not. Any planned activity must be properly analyze as to its cost versus its benefit.
One of the notable and fresh act that the organization has decided is in its promotional activities. Last November 11, 2008 Coca-cola has issued a press release on its partnership with the soccer superstar Memo, also known by his complete name as Francisco Guillermo Ochoa. Certainly, this move of the Organization is not a decision that took over for a single night but a long process of research and analysis if this would be of good returns to the Company. A company or an organization like Coca-cola will not succeed to its current status if its decisions are not based on solid profitable grounds. This means that Coca-cola realized that with Memo, it can increase its sales and turn it into profit. This is where break-even analysis comes in.
To give detail to the said decision, and to identify some needed information in making the breakeven analysis a usable tool, the following are identified:

Unit of measurement used for the partnership with Memo: This is the length of time the partnership lasts and the extent of activities Memo has to do such services for the Company such as autograph signing, promotions to customers and other promotional procedures in favor of the Organization and its products:
Revenue gained through the partnership: Estimated $48 million in sales of memorabilia and more sales of Coca-cola branded products in Latin America are. Each promotional month is estimated to gain $4 million.
Variable cost of the partnership: Incremental costs for the following:

(a) customer appearance
 (b) Autograph signing
(c) Printed and media promotions (i.e.) $5,000 per hour of any of  these activities.
(d) Production cost of the memorabilia related to Memo that are sold
(e) Production cost of the additional sales or Coca-cola branded products resulted by the partnership with memo

Fixed cost for the period of partnership: the Contract of partnership for a year amounting to $15 million.

Although these are estimations, once the company recovers the $15 million fixed cost, which is the contract price with Memo and the variables costs that it would incur, Coca-cola will be breaking even with its expense already. That means after breaking even it has to pay only per activity that it must require Memo to perform and the variable cost of the memorabilia and additional product sales. No activity, no cost to incur. Still, at the end of the year, the contract of partnership between memo and Coca-cola proves profitable.
III. Future Activities
Coca-cola surely has lots of plans. One of the possible decisions that it might make, and their respective relevant and irrelevant costs are shown in the following matrix:

 Possible Decisions –>
 Type of Activities
Contracting every bottling activities out of the company or outsourcing them instead of bottling the products themselves; and

 Relevant activities and their costs
1. The current cost of  workers’ salaries and wages within the bottling division in the Coca-cola company’s premises (estimated annual cost, $130 million)