Reference no: EM132956031

The Coca-Cola Company is an international company that operates in over 100 countries across the globe. The company deals with the production and sales of soft drinks, including different carbonated beverages, fruit juices, and specialized products such as diet coke. With its dominance globally, the company needs a definite and straightforward method of taking inventories to calculate and determine its costs and revenues.

• Inventories mainly involve packaging, raw materials, and finished products, including supplies, ingredients, and processed goods. Coca-Cola, an international company, uses the first-in-first-out (FIFO) or average cost inventory method to determine its product costs (Simeon & John, 2018). The Coca-Cola Company in the U.S currently uses the FIFO inventory approach in the finance and accounts departments. This method usually entails keeping the stock moving such that the initial inventory bought is the inventory sold (Simeon & John, 2018). The technique involves keeping records aligned with the dates an item is purchased to avoid old products from being outdated or shop-soiled. Recently-produced unsold products are usually retained in the inventory at the year's end.
• Coca-Cola uses the FIFO method to prevent ingredients or products from losing quality or expiring. When a company uses the FILO approach, there is little or no chance of products or components from degrading quality or expiring (Simeon & John, 2018). Food and beverage goods are nearly always sold out using the FIFO method as the company has a small shelf life. Therefore, the oldest goods or those first distributed to the shop are always the first to sell (Simeon & John, 2018). The FIFO inventory method provides accurate reports. Coca-Cola uses FIFO to balance its inventories in exact prices that the company used to buy the stock.
• The FIFO method has simplicity benefits. FIFO transaction recording is done with similar order numbers in which the goods are produced or purchased, making inventories much simpler to process and understand (Simeon & John, 2018). Coca-Cola uses the FIFO method because it undermines the depreciation of goods. When the company sells older products first, the organization prevents the depreciation of the products' value.
• The FIFO approach is an ideal method for organizations with high inventory figures, such as Coca-Cola. Besides, the company uses the FIFO method because it is most suitable for international markets (Simeon & John, 2018). The FIFO approach aligns with International Financial Reporting Standards since it maintains and does not manipulate tax values, hence applicable for a company that operates worldwide.

The Method's Impact on Net Income

• The Coca-Cola Company uses the FIFO method because it increases net income and inventory value. FIFO improves the company's value during inflation since the products that the company will buy next will be more expensive (Simeon & John, 2018). The approach also elevates the company's net income since the older products with lower quality become the smaller proportion of the company's sales.

The Specific Identification Method

• Coca-Cola can also use the specific identification inventory approach, which allocates a particular cost to each product produced by the company. This approach mainly benefits businesses with numerous and different products, particularly when these products are bought from other sources like the Coca-Cola production structure (Simeon & John, 2018). This method can suit Coca-Cola because it can accurately identify the sale amount, cost, and location of all its products. The method is suitable for Coca-Cola because it provides accurate numbers on losses and income with normal spoilage of products.

Problem 1: "What did you find in regards to inventory turnover in that FIFO does indeed push more inventory turns in that it is more scrutinized. FIFO establishes a system in which stringent inventory controls are paramount in order to limit the interest one pays. How does Coke leverage that?"