CASE STUDY

Company Cola (Cola) has been engaged in the production of fizzy drinks namely Spirito since 2011. It has captured more than 30% of the market share in South Africa and is on the verge of expansion. Every quarter, the Finance Manager prepares the set of financial statements and submit them to the Board for approval. Based on financial figures and estimates, the prices of Spirito is fixed. The Finance Manager only ensures that the costs of production are absorbed in the pricing.

After 8 years, a new Chairman of the Board has been recruited. The new Chairman is mesmerized that Cost accounting reports are not prepared by the Finance Manager. The new Chairman decided to meet the Chief Executive Officer (CEO) to discuss the issues. The CEO agreed with the new Chairman and they finally issued new instructions to the Finance Manager to prepare Cost accounting reports to the Board. The new Chairman believes that Management information is crucial for managerial decision-making based on his wide industrial experience. On the other hand, the Finance Manager believes that Cost accounting has a lot of disadvantages. Hence, this will affect decision-making in Cola.

The Finance Manager called a meeting with his finance team to guide them to prepare Cost accounting reports. The Accountant of Cola is now facing difficulties of big data and analytics.

REQUIRED:

(A) Explain to the new Chairman of Cola the limitations of Cost Accounting in providing guidance for managerial decision-making (25 Marks)

(B) Critically distinguish Cost accounting and Financial accounting and explain how cost accounting will be beneficial to Cola (25 Marks)