Use the 2014 Form 10-K (year ended on January 1, 2014) for Coca-Cola Bottling Co. Consolidated to complete the requirements below. Be aware that Coca-Cola Bottling Co. Consolidated (COKE) is a separate company from The Coca-Cola Company (KO), so do not confuse them. To obtain the Form 10-K, you can use the EDGAR system (see Appendix A at the back of this text for instructions), or it can be found under the "Investor Relations" link on the company's corporate website at www.cokeconsolidated.com. The company's Form 10-K can be found under "SEC Filings." Be sure to read carefully the following sections of the document:
■ Under "Item 1.Business," read the subsection titled "Seasonality" on page 13.
■ Under "Item 2.Properties," on page 23.
■ In the footnotes section of the report, under "Note 1-Summary of Significant Accounting Policies," read the following subsections:
■ "Marketing Programs and Sales Incentives" on page 70.
■ "Cost of Sales" on page 71.
■ "Selling, Delivery and Administrative Expenses" on page 71.
■ "Shipping and Handling Costs" on page 71.
Required
a. Does COKE consider shipping and handling costs and advertising costs to be direct or indirect costs in relation to the manufacturing of its products? Explain.
b. Assume that when COKE ships orders of finished goods from manufacturing locations to sales distribution centers each shipment includes several different products such as Coca-Cola, Sprite, Dr Pepper, and Seagrams Ginger Ale. If COKE wanted to allocate the shipping costs among the various products, what would be an appropriate cost driver? Explain the rationale for your choice.
c. Based on COKE's discussion of the seasonality of its business, should the depreciation of production equipment recorded in a given month be based on the volume of drinks produced that month, or should the depreciation for each month be 1/12th of the estimated annual depreciation COKE expects to incur? Explain your answer.
d. As Item 2. Properties indicates, COKE appears to have significant excess capacity at its plants. Approximately what percentage of available production capacity was not being used by COKE in 2014? What are some possible reasons COKE might want to have this much excess capacity? Explain.