Part A: Financial Performance
Starbucks is one of the leading specialty retailers of coffee beverages and related food such as beans. The company`s recent annual sales have been $6.0 billion, which translated into over $400 million in profit (Starbucks, 2013). Starbucks operates more than 6,600 owned retail stores with an additional 3,700 stores in shopping centers and airports in over 41 countries. According to analysis, it is estimated that an average customer will visit Starbucks store about 10 percent twice a day and 18 times a month. Additionally, the company has direct retailing strategic alliances with Kraft Foods, Dreyer`s Grand Ice Cream, Barnes & Jim Beam, Noble Booksellers, United Airlines and PepsiCo. This way, the company aims to expand its distribution portfolios (Starbucks, 2013).
Current Political and Economic Events
In recent past, coffee has been on the rise as one of the most traded commodities in the global market. It is a common beverage in about 70 tropical counties and is the second most traded commodity globally just after petroleum (Starbuck, 2013). The second event affecting the industry and Starbucks is the recent volatility of global coffee prices. This necessitated the use of fixed-price buying and purchase commitment.
Starbucks owns patents and has applied to register several trademarks as well as service marks in America and other countries in the world. Starbucks owns several trademarks that are considered material to the company`s operations. These trademarks include Seattle`s Best Coffee, Starbucks logo, Starbucks VIA, Frappuccino and Tazo (Starbuck, 2013). These trademarks are renewable since their registration periods vary from country to country but are generally valid and properly maintained.
The most notable event that may affect Starbucks` operations in the near future is the pending legal proceedings with Kraft foods. The proceedings were sparked by Starbuck`s notification to Kraft on March 1, 2011 to discontinue their distribution arrangement due to breach its obligations under the Agreement (Starbuck, 2013).
Over the past three years, the company has made steady increases in earnings in terms of operating revenue and profits. In terms of operating income, the company made $1,419 million in 2010 which increased to $1,728 in the year 2011. The increase went on to 2012 to $1,997 which shows a steady and consistent increase in revenue (Starbucks Financial Reports 2013). Therefore, the same trend translates to the profit margins of the company which shows a steady increase in levels. In the year 2010, the company made $10.7 which increased to $11.7 in 2011. The profit margin increased to $13.3 in the year 2012 and the trend looks to continue this year (Starbucks Financial Reports 2013).
Part B: Analysis
Short and Long-Term Plans
The next plan for Starbucks is to maintain it position as one of the most highly respected world brands at not only in the coffee industry but in the world business environment (Starbucks, 2013). To achieve the goal of this plan, the company will maintain a disciplined expansion of a world market for coffee stores. Additionally, the company plans to leverage the traditional store model that is admired and will continue to offer new coffee products to the market. In the long run, the company also plans to work into introducing a variety of product and forms, in all new categories that they will introduce and distribute over diverse channels.
Starbuck`s Expected Future Performance
The company expects to continue with the consistent income trend in the next years. The company always works to maintain the current and the traditional quality of products in order to achieve the above targets. Starbucks also expects to be a stronger coffee brand in the international market with more coffee stores and distribution outlets (Starbucks, 2013). The company`s Global Responsibility strategy will be to maintain it long run commitments of providing global market with coffee stores, the company is also committed to serve communities and business partners as well as Starbucks commitment of being the best employer. These are part of the larger elements of Starbucks` business strategies.
According to the company`s financial reporting, the primary competitors for Starbucks are specialty coffee shop and quick-service restaurants. The company faces several competitors such as Diedrich Coffee Inc, Dunkin` Brands Inc, Tully`s Coffee, Gloria Jean`s, New World Coffee, Brew HaHa and Caribou Coffee (Starbucks, 2013). There are over 14,000 specialty outlets established in United States that compete for the attention of the coffee enthusiast. It is notable that all competitors are ambitious to expand their market. However, Starbucks have a favorable completion since no other specialty coffee rival has as many coffee stores as the coffee giant. Despite this advantage, there are also some local and regional competitors against Starbucks which necessitates aggressiveness.
Production and Costing Methods
The company is using both job costing method and process costing method. This is evident due the two costing drivers the company is facing. The company uses job costing method for the distribution channels that are set as direct retailing strategic alliance. The company on the other hand uses process costing for it coffee stores. The main raw materials used by the company is the finest coffee, coffee cream, standard sugar and water. However, the company has other related products such as beans which use slightly different raw materials.
Standard Costing and Starbucks
From the nature of the business operations and cost drivers of Starbucks, standard costing method would be the most appropriate costing method. The advantage using standard costing for Starbucks is that it is a crucial aspect of cost accounting. It is a necessary cost method for budgeting and establishing of variance analysis, especially in critical areas (Horngren & Foster, 2003). In the use of standard costing method, Starbucks derives the following noteworthy benefits that enable production and distribution channels.
Benefits of Standard Costing to Starbucks
First, use of standard costing methods helps in budgeting and decision-making process. This is because a standard cost is in the form of a budgeted cost. This means that the company`s management accountants have predetermined cost that they can use to estimate and budget costs of the planned activities. From the standpoint of pricing products or services, standard costs will simplify price setting process for jobs or products of the company.
From the standpoint of performance evaluation, standard costing facilitates management by exception since it gives managers comprehensively evaluated performance benchmarks to apply in decision making (Horngren & Foster, 2003). If outcomes or costs fall away from the benchmarks, then managers can attend to those specific items and avoid the rest.
From the standpoint of pricing products or services of financial reporting, standard costing simplifies bookkeeping. This is because it simplifies the process of recording actual costs particularly when apportionment is needed. Since standard costing has a predetermined estimates of costs for a cost unit, assigning costs to jobs is made easier. Additionally, standard costing presents a simpler method of stock valuation other than weighted average or FIFO cost method (Horngren & Foster, 2003).
Activity Based Costing
Starbucks also uses some elements of Activity Based Costing due to different activities that the organization has incorporated. Activity Based Costing aligns different costs as per the different activities that are associated the cost drivers. Different activities that the company is involved in are apportioned in isolation to get total costs for each activity. These are then incorporated in the final costing statements along with other costs of the company.
Horngren, D., & Foster, B. (2003). Cost Accounting – A Managerial Emphasis, 11th edition.
Starbucks Financial Reports (2013). Retrieved From,
Starbucks, (2013). Starbucks Coffee, Retrieved From,
November 24, 2013