Cost-volume-profit (cvp) analysis of bottling companies in the Philippines calendar year 2016 Kim D. Bernardo, Christine Joy B. Rivera, Anasuzette M. San Juan

Thesis BSA University of Rizal System, Binangonan 2017

includes bibliographical references.

This study "Cost-Volume-Profit (CVP) Analysis of Bottling Companies in the Philippines Calendar Year 2016" aimed to determine the interrelationship of cost, volume and profit to analyze the break-even point, margin of safety and operating leverage and evaluate the performance of the bottling companies that primarily manufacture, distribute, market, and sell non-alcoholic beverages in the Philippines using financial statements from the Security and Exchange Commission (SEC) for the Calendar Years 2013, 2014 and 2015. Considering eight (8) bottling companies in the country namely: 4 M Bottlers, Incorporated, Aqua Royale Products Corporation, ARC Refreshments Corporation, Coca-Cola FEMSA Philippines, Incorporated, Nestle Waters Phils. Incorporated, Pacific Bottlers Phils. Incorporated, Pacific Royal Bottling Corporation, and Pepsi-Cola Products Philippines, Incorporated, the researchers determined three (3) samples: (1) ARC Refreshments Corporation, the licensed bottler of RC Cola in the Philippines, (2) Coca-Cola FEMSA Philippines, Incorporated, the largest and well-known bottling company of Coca-Cola products in the Philippines as well as in the world, and lastly, (3) Pepsi-Cola Products Philippines, Incorporated, the exclusive bottler of PepsiCo beverages in the Philippines, out of the total population through purposive sampling method. Company profiles that are gathered from different local and foreign information from the internet, book references and other related research studies were Years of existence, number of plants and number of employees. The researchers used the descriptive method for the research study since the evaluation of the performance included the gathering of relevant data, using the data gathered as an input to statistical calculations, interpreting the results of the calculations, and the comparing the results. The following statistical tools were used in interpreting the data that were obtained from the financial statements: (1) Percentage was used to present the difference in proportion of data in respect to other variables, (2) Rank was used to arrange the results in a series of ascending or descending order, and (3) Graphical Representation was used for comparisons of data among the given categories. The researchers found out that in terms of company profile, Coca-Cola FEMSA Philippines, Incorporated ranked first in all of the Years of existence, number of plants and number of employees. It had the longest operating period at 35 Years, a total number of 19 plants and has more than 15,000 employees nationwide. Followed by Pepsi-Cola Products Philippines, Incorporated at 27 Years and has 5,931 employees working in their 14 plants across the country. And finally, ARC Refreshments Corporation at 3, 9 and 1000+ in terms of Years of existence, number of plants and number of employees, respectively. The data obtained by the researchers revealed that all of the three companies showed an increasing amount in their sales from the Year 2013 to 2015. The peso amount of variable costs of all of the three companies also showed that they were increasing from Year 2013 up to 2015. But some were able to manage to decrease their variable expenses in proportion to sales for the Year 2015. For instance, ARC and Coca-Cola managed to decrease their variable expenses from their performance of the previous Year for 0.52% and 3.14%, respectively. On the other hand, Pepsi displayed an increase of 1.34% in their variable costs for the Year 2015. For the fixed costs, Coca-Cola FEMSA Philippines, Incorporated and Pepsi-Cola Products Philippines Incorporated, unlike ARC Refreshments Corporation with 1% increase in their fixed costs for 2015, showed favorable decrease in its amount from Year 2013 to 2015 for 4.61% and 1.18%, respectively. For allocation of the contribution margin, ARC exhibited a favorable increase in amount of contribution margin allocated to fixed cost from 50.52% of 2014 to 52.10% for the Year 2015 but a smaller percentage to profit for the Year 2014 to 2015, from 49.48% to 47.90%, which consequently resulted to a lower operating profit in 2015. For Coca-Cola, the entire contribution margin available was consumed by the fixed costs in Year 2013 and 2014, resulting to losses but it showed a favorable improvement of operations since the company managed to recover its operating profit by 3% for the Year 2015. On contrary, Pepsi-Cola had managed to maintain their rate of allocation of contribution margin to fixed cost and operating profit on Year 2014 to 2015. In terms of break-even sales in peso and in units, Coca-Cola got the lowest amount of break-even sales from Year 2014 to 2015 with a negative amount of 5,010,247,938 but appeared to be the most favorable in break-even in units with its decrease of 244,164,130 units. Sensitivity analysis of Cost-Volume-Profit (CVP) results showed that in terms of margin of safety, margin of safety ratio and operating leverage, Coca-Cola FEMSA Philippines, Incorporated ranked first in all aspect by getting the highest amount of increase in margin of safety from Year 2014-2015 at 9,130,354,938, highest increase in margin of safety ratio at 18.18% from 2014 to 2015 and the highest increase on its operating leverage at 41.35. For the determination of the forecasted optimum contribution margin using profit estimation and CVP analysis, the researchers assumed that ARC Refreshments Corporation, Coca-Cola FEMSA Philippines, Incorporated and Pepsi-Cola Products Philippines, Incorporated can generate an income that is 15%, 22% and 4% higher than the previous Year, respectively. Based on the findings factually obtained, the researchers concluded that the Year of existence does not guarantee an operational stability of a company. Factors like declining market value, price changes, market competition, increase in operating expenses, et cetera can still affect the overall performance of a company even if it is in existence for a longer period of time than the others. It was also concluded that the number of plants and number of employees directly affects the amount of fixed cost in a company. This meant that a company with a higher number of plants and number of employees will generate a higher amount of fixed costs. In addition to that, it was also determined that an increase in operating profit and a decrease in operating expenses implies that a company is able to not only manage their costs effectively, but also able to enhance profit consciousness and understand their cost structure. As shown in the operating results of ARC, Coca-Cola and Pepsi, a high variable and fixed expenses resulted to an increase in break-even point. It was established that an increase in the variable costs and expenses without a corresponding increase in selling prices will cause the contribution margin to shrink and a higher margin of safety will reduce the risk of business losses. It meant that the lower the break-even point and the higher the margin of safety, the better it is. It also appeared that a lower operating leverage tends to be more flexible with the changes in the market. Overall, it seemed that the company will be able to perform at its the best if it can manage its expenses effectively and if it has the ability to earn a relatively high rate of operating profit from combination of factors such as its ability to command its price and fixed costs for a given time period regardless of change in activity (volume). Based on the findings and conclusion, the researchers came up with the following recommendations for the companies: For ARC Refreshments Corporation, they should continuously increase the sales by scrutinizing the products and focusing on those products that are most profitable. Decreasing the cost of selling like cutting non-value added activities can also help.

The company may also consider the importance of building their customers' satisfaction by giving them their expectations by continuously producing varieties of beverages to suit the changing taste of their market.

For Coca-Cola FEMSA Philippines, Incorporated, it is suggested that they should reduce the amount of factors that affect the unfavorable increase in the sum of their variable and fixed costs resulting to operating loss by cutting down their fluctuating costs, reducing the amount of fixed costs by closing some plants that are not fully utilized, inspecting the products and find out which of them are the most or the least cost-effective, and by continuously producing varieties of beverages to suit the changing taste of the market. Lastly, for Pepsi-Cola Products Philippines, Incorporated, the researchers recommended that the company should increase their contribution margin. Increasing the contribution margin of the products meant that the company needs to increase the amount of profit each product generate. To do this, the variable cost per product should be minimized. There are several ways to decrease these costs like getting volume discounts for raw materials ordered and employing better means of production. Also, they should continuously produce varieties of beverages to suit the changing taste of the market.