Cost Structure Of Pepsico

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The Cost Structures of PepsiCo

Managerial Economics Final Project

Submitted by:

Manal Aftab
Kinza Tahir
Mahnam Shahid

Semester: 7

PepsiCo, Incorporated is a global American beverage and snack company. The company manufactures a variety of beverages, as well as salty, sweet and grain-based snacks, and other foods. Besides the Pepsi-Cola brands (including Mountain Dew), the company manufactures Quaker Oats, Gatorade, Frito-Lay, SoBe, and Tropicana.
Business Units:
PepsiCo is organized into three business units, as follows:
1. PepsiCo Americas Foods, which includes Frito-Lay North America, Quaker Foods North America, and all of Latin American food and snack businesses.
2. PepsiCo Americas Beverages, which includes PepsiCo
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The total cost is the sum of fixed costs and variable costs faced by PepsiCo. Fixed costs are costs which PepsiCo is liable to pay whether they produce any quantity of Pepsi or not. These costs include the sales general and operating expenses.
The variable costs on the other hand include the cost of revenue. These costs include cost of materials related to a product, cost of production labor related to a product, the overhead allocated to a product, the cost of labor associated with the product, the cost of a sales call, the cost of a coupon or other sales discount or promotion associated with a sale, the commission related to a sale.
The average costs are obtained by dividing the costs by the quantity of Pepsi sold. The marginal cost is obtained by dividing the change in costs with change in quantity sold.
Here, TC = Total Cost, TFC – Total Fixed Cost, TVC = Total Variable Cost, ATC = Average Total Cost, MC = Marginal Cost, AFC = Average Fixed Cost, AVC = Average Variable Cost, ATC = Average Total
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Apart from the sharp rise in cost from 2010 to 2011, the rest of the graph is almost smooth, with minor disturbances. This means that the any increase/decrease in fixed costs for the company has been counteracted by decrease/increase in the variable costs of the company, so that the total remains consistent. The reason for the sharp increase in total costs in 2011 was because both the fixed and variable costs of Pepsi increased during this time period. The reason for this were the extremely high levels of input price inflation, emphasizing the broad pressures confronting global food companies amid steep rises in the price of oil and agricultural

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