Identification of Relevant and Irrelevant Cost - Coca Cola Flavored Milk - Essay Example

In the mid of 2007, the company underwent some serious planning regarding the extension of current product lines. Carbonated drinks, mineral water, fruit juices and other non-alcoholic beverages were already there in company’s product portfolio, yet the company realized the importance of adding a new product in the form of flavored milks. The launch of this new product under the name of Coca-Cola’s brand name is one of the most challenging tasks for the product managers as well as the project managers of the company.

The research and development department of the company undertook rigorous workings on the proposed launch of flavored milk. The whole research process followed the different stages including planning, development of the new product, testing, commercial viability, branding, initial launch of the new product and many other activities. Each of these activities had its own cost estimates which are considered as either relevant or non-relevant. Planning Stage The planning stage is the general stage for all those products that are intended to be launched.

The costs arising due to this activity are always considered as irrelevant because the planning process always keeps going on irrespective of the fact whether a new product is launched or not in the current timeframe. The general expenditure of Coca-Cola on account of its planning activity amounts to around $1 million annually. However, this cost is the general expense of the company and cannot be allocated to the product cost of flavored milk. Development Stage Once a basic formula is identified for one or more products, then development stage is commenced in order to create a better product.

However, this activity is carried out for every product that can be produced by the company irrespective of the fact whether it would be launched by the company or not. As a result, the expenditures pertaining to this particular stage are considered to be irrelevant and assumed to be accounted for as the general research and development expenditures of the company. The rough estimates of Coca-Cola under this activity, ranges between $1 and $3 million depending upon the level of estimates. Testing Stage After the products are developed, there comes the next stage in which the products are gone through rigorous testing activities such that the products are tested in a real environment and timeframe.

The taste, quality, odor, and other characteristics of the product are tested by the consumers as how they rate those products as per their own taste preferences. Since this process also occurs on uniform basis for every developed product, therefore the cost pertaining to testing is considered as irrelevant. Roughly estimates of this cost ranges around $0.5 million to$2 million a year and is expensed out on general basis. Commercial Viability Testing stage leads to the stage where the products are checked for their viability as to whether a particular product would be liked and accepted by the consumers, concerns of distributers regarding the effective transportation of the product as the product is at its birth stage and with many other issues.

This cost is the piercing cost among the relevant and irrelevant cost. It depends upon the policy of the company whether to account for this cost as a relevant or irrelevant cost. Branding After it is decided as to which product is going to be launched in the market, effective marketing strategies are formulated