Introduction to the company: PepsiCo is a leading global beverage, snack and Food Company.

They manufacture or use contract manufacturers, market and sell a variety of salty, convenient, sweet and grain-based snacks, carbonated and non-carbonated beverages and foods in

approximately !! countries, with its largest operations in "orth #merica $%nited &tates and Canada', (exico and the %nited )ingdom. PepsiCo*s commitment to sustainable growth, defined as Performance with Purpose, is focused on generating healthy financial returns while giving back to the communities it serves. This includes meeting consumer needs for a spectrum of convenient foods and beverages, reducing its impact on the environment through water, energy and packaging initiatives, and supporting its employees through a diverse and inclusive culture that recruits and retains world-class talent. The Pepsi Cola Company began in +,-, by a Pharmacist and .ndustrialist Caleb /radham, but it only became known as PepsiCo when it merged with Frito 0ay in +-12. %ntil +--3, it also owned )FC, Pi44a 5ut, and Taco /ell, but these fast-food restaurants were spun off into Tricon 6lobal 7estaurants. .n 8ecember !!2, PepsiCo surpassed Coca-Cola Company in market value for the first time in ++ years since both companies began to compete. PepsiCos Operations: PepsiCo is organi4ed into three business units, as follows9 $+' PepsiCo #mericas Foods $P#F', which includes Frito-0ay "orth #merica $F0"#', :uaker Foods "orth #merica $:F"#' and all of businesses $0#F' 0atin #merican food and snack

$ ' PepsiCo #mericas /everages $P#/', which includes PepsiCo /everages "orth #merica and the entire 0atin #merican beverage /usinesses; and $<' PepsiCo .nternational $P.', which includes all PepsiCo businesses in the %nited )ingdom, =urope, #sia, (iddle =ast and #frica These three business units are comprised of six reportable segments $referred to as divisions', as follows9 Frito-0ay "orth #merica $F0"#' :uaker Foods "orth #merica $:F"#' 0atin #merica Foods $0#F' PepsiCo #merica /everages $P#/' %nited )ingdom > =urope $%)=%', and (iddle =ast, #frica > #sia $(=##'.

The part of our concern in this report will be the (iddle =ast, #frica and #sia $(=##' division as our research and collected data is confined to this region. Middle East, Africa & Asia: (=## manufactures, markets and sells through consolidated businesses as well as through non controlled affiliates, a number of leading salty and sweet snack brands including 0ay*s, 8oritos, Cheetos, &mith*s and 7uffles. Further, (=## manufactures or %ses contract manufacturers, markets and sells many :uaker brand cereals and snacks. (=## also manufactures markets and sells beverage concentrates, fountain syrups and finished goods, under various beverage brands including Pepsi, (arinda, 3%P and (ountain 8ew. These brands are sold to authori4ed bottlers, independent distributors and

retailers. 5owever, in certain markets, (=## operates its own bottling plants and distribution facilities. .n addition, (=## licenses the #?uafina water brand to certain of .t*s authori4ed bottlers. (=## also manufactures or uses contract manufacturers, markets and sells ready-to-drink tea products through an international @oint venture with %nilever. Competition: PepsiCo operates in highly competitive markets. .t competes against global, regional, local and private label manufacturers on the basis of price, ?uality, product variety and distribution. .n %.&. measured channels, its chief beverage competitor, The Coca-Cola Company, has a larger share of carbonated soft drinks $C&8' consumption, while PepsiCo has a larger share of li?uid refreshment beverages consumption. .n addition, The Coca-Cola Company has a significant C&8 share advantage in many markets outside the %nited &tates. Further, PepsiCo*s snack brands hold significant leadership positions in the snack industry worldwide. .ts snack brands face local and regional competitors, as well as national and global snack competitors, and compete on the basis of price, ?uality, product variety and distribution. &uccess in this competitive environment is dependent on effective promotion of existing products and the introduction of new products. PepsiCo believes that the strength of its brands, innovation and marketing, coupled with the ?uality of its products and flexibility of its distribution network, allow it to compete effectively. Critical Accounting Policies: These policies may re?uire management to make difficult and sub@ective @udgments regarding uncertainties, and as a result, such estimates may significantly impact

Company*s financial results. The precision of these estimates and the likelihood of future changes depend on a number of underlying variables and a range of possible outcomes. PepsiCo*s critical accounting policies arise in con@unction with the Following9 A 7evenue recognition, A /rand and goodwill valuations, Re enue Recognition: PepsiCo*s products are sold for cash or on credit terms. The credit terms, which are established in accordance with local and industry practices, typically re?uire payment within <! to -! days internationally, and may allow discounts for early payment. .t recogni4es revenue upon shipment or delivery to its customers based on written sales terms that do not allow for a right of return. 5owever, its policy for 8&8 and chilled products is to remove and replace damaged and out-of-date products from store shelves to ensure that consumers receive the product ?uality and freshness they expect. &imilarly, its policy for certain warehouse-distributed products is to replace damaged and out-ofdate products. /ased on the company*s experience with this practice, it has reserved for anticipated damaged and out-of-date products. !rand and "ood#ill $aluations: PepsiCo sells products under a number of brand names, many of which were developed by PepsiCo. The brand development costs are expensed as incurred. There are other brands that PepsiCo has ac?uired. %pon ac?uisition, the purchase price is first allocated to identifiable assets and liabilities, including brands, based on estimated fair value, with any remaining purchase price recorded as goodwill. 8etermining fair value re?uires

significant estimates and assumptions based on an evaluation of a number of factors, such as marketplace participants product life cycles market share consumer awareness brand history and future expansion expectations amount and timing of future cash flows the discount rate applied to the cash flows.

The company believes that a brand has an indefinite life if it has a history of strong revenue and cash flow performance, and we have the intent and ability to support the brand with marketplace spending for the foreseeable future. .f these perpetual brand criteria are not met, brands are amorti4ed over their expected useful lives, Bhich generally range from five to C! years.

%ierarchal structure of the company: Following are the board of directors of PepsiCo .nternational Dictor E. 84au, #rthur C. (artine4, &haron Percy 7ockefeller, 8aniel Dasella, #lberto .bargFen, 0loyd 6. Trotter, 8ina 8ublon, (ichael 8. Bhite, 7ay 0. 5unt, .ndra ). "ooyi, .an (. Cook, Eames E. &chiro Further; following is the hierarchal structure that PepsiCo. .nternational operates in

&%E !'(I)E(( E)$IRO)ME)&: Consumers: Pepsi believe the main GdriversG behind consumer behavior are value, variety, attitudes and convenience. Competitors: PepsiGs direct competitor is Coca-Cola #matil. The non-soft drink competitors are tea, coffee, water, energy drinks, sports drinks, milks, etc which are all consumed on beverage occasions. Pepsi aims to gain a greater share of these occasions. &he Mar*eting Mi+: Product: Pepsi, Pepsi 0ight, Pepsi Twist, Pepsi (ax, Pepsi 8iet, Pepsi Hne, PepsiDanilla,Pepsi /lue, Pepsi Bild Cherry, 3%P, 8iet 3%P, Caffeine Free Pepsi 0ight, (ountain 8ew $including 8iet, Caffeine Free, Code 7ed, and 0ive Bire flavors'. Price: Pepsi is competitively priced to its ma@or competitors, offering a better tasting product at a competitive price. Promotion: 1!I of the marketing funds are spent on advertising. Primarily The advertising with radio, maga4ine, cinema and outdoor support. Hther promotional items include9 point of sale material,consumer premiums $e.g. clothing caps, etc', sporting and concert sponsorships. Place: P#5JP. own the Pepsi brands. They sell the concentrate to C&# and bottles the Pepsi products and distributes it to various channels e.g. ma@or food outlets who manufactures consumers. C&# distribute Pepsi via

supermarket chains, smaller milk bars, restaurants and fast

$)FC, Pi44a 5ut and Hporto'. Pepsi also have refrigerated vending

machines at various locations and workplaces. &ervice the right pack si4e at the right price, in the right place at the right time.

PepsiCo !rands ,ist:

Pepsi-Cola Caffeine Free Pepsi Diet Pepsi Caffeine Free Diet Pepsi Pepsi Twist (regular & diet) Wild Cherry Pepsi Pepsi Blue Pepsi ON Pepsi !anilla Diet "ountain Dew "ountain Dew Code #ed Diet "ountain Dew Code #ed "ountain Dew $i%eWire "ountain Dew Bluesho&' "ountain Dew ("P energy drin' "ug )ierra "ist (#egular & Diet) )li&e $ipton Bris' (Partnership) $ipton *&ed Tea(Partnership)

 Dole +ui&es and +ui&e drin's ($i&ense) FruitWor's +ui&e drin's (,uafina purified drin'ing water Frappu&&ino ready-to-drin' &offee (Partnership) )tar-u&'s Dou-le)hot (Partnership) )oBe +ui&e drin's. dairy. and teas )o-e energy drin's (No Fear and (drenaline #ush) Outside North (/eri&a "irinda 01P (*nternational) Pepsi $i/2n 3as Tee/ Pepsi "a4 Pepsi $ight Fiesta D&5 ($i&ense) "andarin ($i&ense)

#adi&al Fruit

Production process:

This production line produces P=P&., (=7."8#, 3-%P si4es !.20, +0 and . 20

The whole process can be summari4ed as follows9 + A Manufacturing of the empty -ottles A ,a-eling & coding the Process < C 2 A .iltration of produced empty -ottles Process A .illing & capping the -ottles A Pac*aging

/0 Manufacturing of the empty -ottles: The bottle comes from the manufacturer in )&# as in the figure. #nd by some automated process it will be like the one we see in supermarketsKK 20 ,a-eling & coding the -ottles : .n this step, the bottles are labeled .#fter labeling the bottles a color sensor is used to check that there is a label on the bottle ./ut if it is not labeled , the re@ecter will throw the bottle out of the line . #fter that, a laser printer is used to print a code $product number' and date on the bottle. 10 .iltration Process: #fter labeling and coding the bottles we are to ensure that the bottles are well cleaned,and this process is @ust before the li?uid filling and the capping process. For filtering, thePepsi factory uses a machine that saniti4es every bottle by a &pecial li?uid GgasG and undercertain temperature, and this will most of the microbes. This process is so importantand as a result of it a factory will get the consumerGs goodwell, as well as thepeace of mind. 20 .illing & capping the -ottles: .n this step, the bottles are filled automatically with the desired li?uid. The machine is using the level fill technology $using level detector' to fill the water .#fter filling the li?uid, the bottles will capped . #t the end of this step the li?uid level in the bottles will checked by a photo-electric sensor $will mentioned in next section' . .f the level is not correct ,a re@ecter that will push any undesired bottles off the line0 Pac*aging:

.n this step, the bottles will be arranged in rows. =very six bottles will enter the oven to be packaged ..n this stage, there are many sensors used for controlling the conveyer belt speed when the line is full. This package is now ready to sale it.

.inancial (tatements:

Costs Classification: Cost Classification

Manufacturing Costs

)on3 Manufacturing Costs

8irect (aterial

8irect 0abor

(anufacturing Hverhead

&elling Costs

#dministrative Costs

Dariable (anufacturing Hverhead Manufacturing Costs:

Fixed (anufacturing Hverhead

(anufacturing cost is the expenditure incurred in carrying out the production processes of an organi4ation. The manufacturing cost includes direct costs, for example, labor, materials, and expenses, and indirect costs, for example, subcontracting and overheads. The costs identified as manufacturing costs in the production of 0ays are as follows +. 8irect (aterials The materials that go into final product are called raw materials Potato Hil

&easoning$flavour' Film $packet' Carton

. 8irect 0abour The term direct labor is reserved for those labor costs that can be essentially traced to individual units of products. 8irect labor is sometime called touch labor, since direct labor workers typically touch the product while it is being made. 8irect labour includes worker working in .nput 8epartment Peeling department Bashing department &licing department Frying department &easoning department Packaging 8epartment

<. (anufacturing Hverheads (anufacturing overhead, the third element of manufacturing cost, includes all costs of manufacturing except direct material and direct labor. Dariable manufacturing overheads includes =lectricity 6as $gas generator' "itrogen $" ' flush

%tility expenses 7epairing costs (aintenance costs

Fixed manufacturing overheads includes 7ental costs $if gas generator is hired on rent' Transportation costs (eals 8epreciation

.ndirect labour includes 0abour used in service department &ecurity guards 0abour in engineering department Barehousing labour 0abour in ?uality department Hvertime

.ndirect material includes Food stickers

)on3Manufacturing costs "on manufacturing costs are those costs that are not incurred to manufacture a product.

=xamples of such costs are salary of sales person and advertising expenses. 6enerally non manufacturing costs are further classified into two categories. +. (arketing and &elling Costs . #dministrative Costs +. (arketing > &elling Costs9 (arketing or selling costs include all costs necessary to secure customer orders and get the finished product into the hands of the customers. These costs are often called order getting or order filling costs. These costs include; Commissions Placement costs Transportation costs $per unit of product is charged' . #dministrative costs #dministrative costs include all executive, organi4ational, and clerical costs associated with general management of an organi4ation rather than with manufacturing, marketing, or selling. =xamples of administrative costs include executive compensation, general accounting, secretarial, public relations, and similar costs involved in the overall, general administration of the organi4ation as a whole. For PepsiCo, &nacks department following costs are identified as its administrative costs; &alaries Hffice expenditure including furniture and stationery costs

8epreciation costs $offices'

Cost classification on the -asis of cost -eha iour #part from classifying costs as manufacturing and non-manufacturing costs, costs are also classified on the basis of their behaviour. These are the Dariable costs Fixed costs

+. Dariable Costs Dariable cost is a cost that varies, in total, in direct proportion to changes in the level of activity. .n case of the manufacturing of 0ays a number of variable costs are incurred. The first is electricity cost. The electricity is generated from gas generators so the gas will also be considered as a variable cost. . Fixed costs Fixed Cost is a cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. .n case of the manufacturing of 0ays the fixed costs incurred are firstly the depreciation of the fixed assets being used. &econd is the cost of the permanent staff. The transportation cost i.e. cost of transporting potatoes from the farm to plant and then from the plant to warehouse is also considered as a fixed cost. The rental cost e.g. of the generators that are used to generate electricity is also fixed cost. Other Costs:

Hther costs include the fringe benefits and the extra benefits given to the employees. Fringe benefits are perks offered to employees in order to keep them motivated and for the purpose of retaining them. Fringe benefits given to labor include (eal Transportation Hvertime

=xtra benefits to higher executives includes $varies with status' Pay roll Provident fund (edical free facility Transport Fuel expense Cell phones $monthly bill of cell paid'.

In entory Accounting Policy: .nventories are valued at the lower of cost or market. Cost is determined using the average; first-in, first-out $F.FH' or last-in, first-out $0.FH' methods. In entory 4isclosure: PepsiCo Inc0, (tatement of .inancial Position, In entory: %&8 L in millions 4ec56, 4ec1/, 4ec57, 4ec58, 4ec59,

7aw materials Bork-in-process Finished goods .nventories

&ource9 /ased on data from PepsiCo .nc. #nnual 7eports

5:/5 5:// 5:/: 5::6 5::; +,,32 +,,,< +,12C +, 3C +, , +3< !3 + , +12 +1+,2<< +,3<3 +,2-! +,+3- +,+ 2 <,2,+ <,, 3 <,<3 ,1+, ,2

Item Ra# materials

<or*3in3process

.inished goods

In entories

&he company PepsiCo .nc.Gs raw materials increased from !+! to !++ but then slightly declined from !++ to !+ . PepsiCo .nc.Gs work-in-process increased from !+! to !++ but then slightly declined from !++ to !+ . PepsiCo .nc.Gs finished goods increased from !+! to !++ but then declined significantly from !++ to !+ . PepsiCo .nc.Gs inventories increased from !+! to !++ but then slightly declined from !++ to !+ not reaching !+! level.

!rea* E en The planning manager of PepsiCo*s snacks department claims that break even is a re?uirement for companies that are not properly established and for new businesses. #s PepsiCo is a strong brand and an established business, it does not re?uire breakeven analysis to run their business instead they use break even analysis at lower level to analy4e the profit margins. 5e claims that their existence in the market is as the result of PepsiCo*s ob@ective of profit maximi4ation and target profiting and not @ust meeting the expenses #ppendix # is the Cost of 6oods sold and contribution margin statement which could be used for break even analysis. /reak even can be calculated using the formula !rea* e en in rupees = .i+ed e+penses CM Ratio 4ollar sales to attain &arget profit = .i+ed e+pense > &arget profit CM Ratio

Costing Procedures

/oth variable and absorption costing procedures are used. .n PepsiCo they mainly focus on variable costing approach which they use for decision making while the absorption costing is used for analy4ing the financial figures. This again brings us to #ppendix # !udgets Introduction # budget is a plan expressed in dollar amounts that acts as a road map to carry out an organi4ation*s ob@ectives, strategies and assumptions. # company might have a master budget or profit plan for the upcoming year. The master budget will include a pro@ected income statement and balance sheet. Bithin the master budget will be operating budgets such as a sales budget, production budget, marketing budget, administrative budget, and budgets for departments. .n addition there will be a cash budget and a capital expenditures budget. .t is a common practice that the budgets prepared for the next accounting year will be detailed by ?uarter or by month. .t is also typical that the annual budget will not be changed once the actual year begins. For managers, a budget is a guide that it not so rigid that it prevents timely action when needed. .n rare circumstances the annual budget might be revised, but only when the business environment has radically changed. Operating -udget approach The company uses the operating budget approach in which the budget is made for the whole year i.e. + months from Eanuary to 8ecember which is reviewed almost every

month but it is not the rolling one to check if there are some variances there are afterwards corrected according to the current situation. Participati e -udgeting approach The company also uses self imposed budgeting or participative budgeting approach in which they ask all the managers from different departments to give their re?uirements and allocate costs to their re?uirements then these re?uirements are overviewed by administration for budgeting. For instance, plant manager are consulted for all the overheads because later it becomes very difficult to knock down the whole process.