All businesses are concerned about revenues and costs

Managers at companies small and large must understand how revenues and costs behave or risk losing control of the performance of their firms. Managers use cost accounting information to make decisions about research and development, production planning, budgeting, pricing, and the products or services to offer customers. Sometimes these decisions involve tradeoffs. The following article shows how understanding costs and pricing helps companies like Coca-Cola increase profits even as the quantity of products sold decreases.

For Coca-Cola, Smaller Sizes Mean Bigger Profits^*

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Can selling less of something be more profitable than selling more of it? As consumers become more health conscious, they are buying less soda. “Don’t want to drink too much?” Get a smaller can. “Don’t want so many calories?” Buy a smaller can. “Don’t want so much sugar?” Just drink a smaller can. In 2017, while overall sales of soda in the United States declined in terms of volume, industry revenue was higher. How, you ask? Soda companies are charging more for less!

Coca-Cola has been the market leader in selling smaller sizes of soda to consumers. Sales of 7.5-ounce minicans and other smaller packages now account for 10% of Coca-Cola sales by volume. Meanwhile, sales of larger bottles and cans continue to fall. The price per ounce of Coca-Cola sold in smaller cans is higher than the price per ounce of Coca-Cola sold in bulk. The resulting higher profits from the sales of these smaller sizes of soda make up for the decrease in total volume of soda sold. If these trends toward buying smaller cans continue, Coca-Cola will be selling less soda, but making more money, for years to come.

By studying cost accounting, you will learn how successful managers and accountants run their businesses and prepare yourself for leadership roles in the firms you work for. Many large companies, including Nike and the Pittsburgh Steelers, have senior executives with accounting backgrounds.