Table of ContentsIntroduction 3 TASK 1 4 1.1 The importance of costing in the price strategy of Toyota 4 1.2 Design a costing system and how it helps to minimizing the cost for Toyota 4 1.3 Propose improvement to the costing system used by an organisation 5 Task 2 7 2.1 Forecasting techniques to make cost and revenue decision 7 2.2 Assess the sources of funds available to Toyota 8 Task 3 9 3.1 Budgetary target and performance of Toyota 9 3.2 Create master budget for an organisation 10 3.3 Actual expenditure and income to the master budget 12 3.4 Evaluate budgetary monitoring for Toyota 13 Task 4 14 4.1 Recommendations for cost reduction process in Toyota 14 4.2 Evaluate the potential for the use of activity based costing 15 Conclusion & Recommendation 16 Refrences 17 1 Introduction Toyota is one of the largest and most successful carmakers around the world. It is obvious that Toyota possess a reasonable strategy for its financial planning to cover its cost and make profit. Pricing monitoring in this organisation is so important, as well as the system which is applied for forecasting in Toyota. Making profit and being sustainable in this volatile market needs a precise financial decision based on the organisation dealing with pricing, budgeting, quality, the amount of wastage and others activities which will be discussed in this essay. 2 2013) 3 . 2011) On the other hand Toyota and some other carmaker such as Honda and Hyundai have used the price penetration in the market with the affordable credit to have a huge market share. One of Toyota possibility for reducing the cost is the substitute steel with other alternative because steel makes the price high or seeking suppliers who are not Japanese. (Toyota implements a low cost strategy. They have some targets. market leader and loss leader. (What is the costing system. (Automotive news. kurylko. its concern is the maintenance company expenses. 2013) 1. setup the vehicles and other activities then allocate these prices for products that require these actions. Costing system is the way that owners and managers recognise the situation of the organisation and manage costs in order to make profit. which is paid by customers. 2012) Toyota’s strategy pricing is based on low cost leadership (30% price decreasing during five years) and improving their product. which is achievable in a short time and benchmarking the cost with considering their suppliers and customers.1 The importance of costing in the price strategy of Toyota It is considerably wise to understand that the price and cost are two separate objects. competitors. There are some features to determine the price in a company such as customers who are looking for a reasonable price.2 Design a costing system to help cutting the cost for Toyota Costing system is a part of the accounting. which is allocating the extra cost to produce in a suitable and rational manner rather than traditional system.Task 1 1. safety testing. Cost is all of the expenses of an organisation but the price is the money. competitive pricing. (Activity based costing. 2013) The practical method for a car manufacturer is activity based costing (ABC) system. (Pricing strategies. With ABC Toyota would be able to calculate the price of materials. This system has become popular in these days due to increasing dramatically the overhead for carmaker and also the variety of car models and customers tastes. used in engineering. (The original hybrid car. (Marginal costing and Absorption costing. 2002) 1. the boundary between variable and fixed cost is obvious and company would be able to measure the stock and inventories. which are able to provide more spaces for driver in a small size. 2013) Design a costing system for Toyota: the mix design would be appropriate for Toyota because Toyota financial system is different from its budgeting so it should have cost control in the organisation and design a system base on its profitability.Marginal costing: It is the cost of product in addition to variable overhead. (Management & accounting. lower emission. 2013) Hyundai vs.3 Propose improvement to the costing system used by an organisation 1. learn from other business and measure the performance against the organisational target. 2005) Absorption costs: It is a traditional technic and contains the value of total cost. (Benchmarking. Toyota: With more safety. marginal cost contains fixed price plus the variable price thus. also’’ just in time’’ system helps Toyota to reduce waste and have product ready according to customer needs. therefore it can fulfil the long term profit as well as its short term profit. university of south Florida. the hybrid is fuel efficiency and it is in high demand. (Hyundai. innovation and dynamic design. 2013) 2. Toyota has planned to reduce the marginal cost in their hybrid vehicle. it has been announced that Hyundai is one of the most reasonable vehicles so far. Benchmarking: Benchmarking is a tool to compare the organisations in order to improve. there is no boundary between fixed and variable costs. Total Quality Management TQM: 4 . meanwhile the manufacturers explain it in terms of the customer and satisfaction or standard. On the other hand there are some factors. design marketing. which are determined in TQM such as: - Specific rules compliance: Calculate how much the products are able to fulfil the target. 2011) 5 . - Value of price paid: The price that people pay for the beneficial of the products which is sensitive due to the different consumer expectation. (Introduction and implementation of TQM. sustainable improvement and research & development. defining quality is not straightforward because of the variety of people expectation and needs. however it does not apply in all levels. 2013) Toyota is one the companies that has applied the TQM in its organisation.Spec ific rule s supp rt servi ces TQ M eligi bilit y for use valu e of pric e Total Quality Management TQM is related to the attempt of organisation to develop the quality in every part of the organisation. which is specified. However. (Total Quality Management. Toyota can improve its TQM by utilising in employees training. - Support services: The quality is not only defined for product or services but also for the support after purchasing. - Eligibility for use: Measure how much the products are suitable for usage of customers. 1996. 2012) Time series: Series of data.1 Forecasting techniques to make cost and revenue decision It is needed to have a plan and estimate the market for demand and sales. 1999) Sales forecast: 1: Interviewing with customers: knowing habitual behaviour of customers would conduct the company for further decision. (Time series & forecasting. 2007) It could be mentioned the Toyota forecasting according to to BBC news as an example: Toyota has predicted a net profit around £6bn for the 2013. which is written in a period of time for making decision and forecasting. in other words it would assist company to estimate the number of customers afterwards. F. the price and other activities. the former is to observe the attitude of variety of customers from the income or culture or other characteristic view in different shops or areas. (BBC news. oral or questionnaire therefore the useful information is available for making decision. Time series include four stages: the trend. 2: Market experiment: Supply another possibility method with two forms for forecasting. seasonal variation. advertisement. (Demand Estimation. collection information about other alternatives products then select the suitable one and estimate the practical usage. thereby they should evaluate the correct forecasting for this means. (Wood. customers could be interviewed in both ways.Task 2 2. J. the regular and irregular variation. 2013) Toyota Time series sales in Europe 2013 6 . Armstrong. Real and fake. The latter is to give some token money to selected customers in order to shop in a specific area and observe their attitude towards the goods then with collective information the estimation would be possible 3: Regression analysis: This method has four stages such as diagnosing the under estimation products. There are some kinds of methods to recognise and forecast. they can make decision regarding to investment. they had showed a slight fall in sales in 2010.2 Assess the sources of funds available to Toyota Long-term funds: Sport sponsorship: It is the way that Toyota can make money especially in football match or FIFA. 2013) Short-term funds: 7 . 2013) As it presented in 2011 the market demand had a marginal drop. one of them is ordinary share and the other one is preference share.(Toyota sales & production. (Toyota car leasing. 2. Toyota car leasing and contract hire: Toyota offers a plenty of cars on leasing which is a long-term rental contract between Toyota and customers. which would charge the Toyota for lending money. the lender can be bank or other companies. the production decreased from 2007 but continued steady until 2011 in addition. Ordinary shares: There are two kinds of share. (Five important features of Ordinary share. This kind of share has some features such as limited liability. liquidation right. and dividend payment. pre-emptive and voting rights. Leasing provides monthly income for Toyota and a vehicle for customer. As it has clear from the name the former is more common than the latter. 2013) Loan capital: long-term loan in terms of debenture or preference share is available for Toyota as an enormous organisation. factoring and bank loan. however it is able to maintain the operations and it is a ‘cost-effective’ system. Trade credit is when 90% of sales cope with suppliers to buyers without any need of company to pay to supplier. depreciation Financial analysis should consider the return of the investment and margin. In factoring there is another company. (Sources of short-term funds.1 Budgetary target and performance of Toyota Budgeting and the process of planning are essential for the financial heath of the organisation. which charges the organisation to lend money. Business plan is not possible without considering: Previous and current budgeting in order to forecast the future plan Strategy and target Benchmarking Resources Anticipation of the consequence. (Budgeting &planning &control process. The best use of finance and get the optimum result by planning and making appropriate decision. SWOT analysis and PESTLE can help the organisation to make the right decision. Considering a budgetary plan is not a 100% guarantee to the successfulness or improvement. Planning plays a substantial role in budgeting because its framework is base on organisational goal and strategy. 2013) Task 3 3. It means being efficient in the future. 2013) Toyota budgeted sales figure 8 . it can be for short term or long term objective in the future which must be profitable. 2013) Planning process for budgeting for a business should focus on: -Revenue. In addition with the balanced scorecard it would be measure the impact of the financial decision on customer. otherwise it can be available via trade credit. expenditure. performance of the organisation and internal progress. cost -Capital.income. Budgeting should be regularly update in order to take the most advantage out of that and a systematic budgeting planning make the organisation to have a plan in all stags. (Preparing a business plan and budget.Some of the short term funds would be possible to earn from long term funds like the stocks sales. 4. It has shown that the forecasting is based on the previous revenue therefor it is possible to anticipate the future cost and income. budgeting for 2013. 8. (Master budget.731 102. 5. It would appear in cash budget. and budget balance sheet. Sales Production Material Labour Manufacturing Inventory Purchase Income and balance sheet. 3.14 and 15. 1965-2012) Toyota Budgeting Year Sales 2013 2014 2015 (Student own work) 94783 96678 98611 It is an approximately table based on the Toyota sales.875 105.Year Sales 2007 2008 2009 2010 2011 2012 117. budget income statement. 3. 2013 9 . 2. 7. Master budget consists of the kind of budgets such as: 1. 6.595 87400 73582 81515 (Toyota passenger car sales.2 Create master budget for an organisation The master budget is a plan whit a particular target for financial activities in an organisation. 0 Stocks 1622.0 -461215.0 4272.0 6309.0 18950.0 2080.0 336876.0 30349.0 Profit Before Tax 630574.0 4839.0 904000.0 17275.0 Net Interest 76943.0 7401.0 Total Assets 30650.0 3929.0 Operating Profit 355627.0 18898.0 1879.0 Tax 465485.0 Net Assets 11066.0 468279.0 Creditors Amount After 1 year 851753.0 5398.0 1459.0 Fixed Investments 5974.0 928245.0 244212.0 1422.0 6710.0 2444.0 10600.0 Creditors Amount Within 1 year 5818.0 847805.0 10930.0 Total Liabilities 19584.0 147516.0 Profit After 368302.0 -461011.0 -517657.0 18461.Year Ended 31 2012 March 2011 2010 2009 JPY millions Turnover 18583.0 17763.0 19418.0 44815.0 20529.0 5188.0 29818.0 1865.0 Total Dividend n/a n/a n/a n/a n/a n/a Retained Profit / n/a n/a Loss Source: Toyota motor corporation Balance Sheet Year Ended 31 March 2012 2011 2010 2009 Intangible Assets n/a n/a n/a n/a Tangible Assets 6235.0 Debtors n/a n/a n/a n/a Cash at Bank and in Hand 1679.0 29062.0 Total Fixed Assets 18329.0 17988.0 1304.0 61453.0 91585.0 18993.0 10920.0 778306.0 Net Current Assets n/a n/a n/a n/a JPY millions 10 . 0 (Toyota Motor Corporation.) Toyota Master budget Year 2013 2014 Turnover 19263 21189 Stocks 1451.0 Profit and Loss Account 11917.0 397050.0 587653.75 7330.0 570720.863.0 10332. based on increasing the revenue for Toyota.75 1596.0 -759094.0 397050.0 397050.3 Actual expenditure and income to the master budget 11 .0 Shareholders Funds 10550. 3.0 539530.0 10423.0 11835.0 Minority Interests 516217.00 -1900.0 Share Premium Account n/a n/a n/a n/a Other Reserves -1763.75 Cash 2017 2218 Operatio n profit Tangible assets 127602 140362 6663.12 5 (Student own work) The table has been designed for two years and approximately 10% increasing for the following year 2014.0 10359.0 10721.344.0 10061.00 -759094.Called Up Share Capital 397050. 106 228. 12 .188 product sold (Toyota approximately numbers. student own work) The budget and actual sales is not the same because budgeting is a one year plan in advance however it helps company to make right decision.318 205.Year 2012 2011 2010 Actual sales 213.686 Net income 4.625 192.427 203.765 Variance (2698) (3246) (2257) Year 2012 2011 2010 Net revenue 226.066 210.764 213. analysing the variance could help organisation for further action and when it is less than 3% it seems that the company performance is acceptable.598 2.508 Budgeting sales 215.564 207.252 171.663 Cost of 192.481 5. In every budgeting there are some fixed and marginal price. The market for Toyota has improved in some places like U. it is time to monitor and control it with the organisation performance. (Budgeting controlling and monitoring. therefore it is possible to control the business. governmental legislation. profit and lost budget would present the margin and ratios. For his means. it should be a plan for budgeting and controlling. it should have been applied the tool in terms of time to compare the figure in a specific time period. also in the balance sheet. the customer power. 2013) Therefore there is a set of process for monitoring due to the nature of budgeting which in not fix. assets and capital in addition to recognise statistically the variance between actual and budget. (Budgeting. Besides the features. Thus for an organisation like Toyota.4 Evaluate budgetary monitoring for Toyota After applying budgetary. stokes and some others items would be analysed. or Asia. First of all it should consider understanding the reason of variance included: The environmental factors which are out of the control of organisation such as recession. the trend and other figures. Cash budget allows the company to present the future available capital. cash. which should consider in the budgeting. (Monitor and control budget.The variance is the variation between the current result and the planned performance. budgeting in the real world depends on the previous year figures. 2013) 3. sales. Year 2013 Sales in Grow japan %20 Year 2013 Overseas Grow %24 13 . which are in the organisation and it can be fixed such as the level of flexibility of the organisation. the turnover. The monitoring is the regular comparing the cost. In the company of unsatisfactory margin the company has to decrease the cost or increase the price or work on every other part to make profit. in addition comparing the actual income and expenditure with budgeting would help to enhance the predict future. 2010) Financial year for Toyota contains weaknesses as well as movements.S. Every business needs to predict the future expenditure despite of uncertainty the events which will happen. thus Toyota should: -Understand the reason of cost in the organisation -Recognise the most and least valuable section in the company -Alternative usage of resources in order to get most profit out of them -Analysing the business environment to recognise the opportunities for the organisation . for this means it must understand the structure of cost and make the best effective use of resources and obtain the high production. furthermore reduce the time of group preparing product when they are waiting for sale. 2013) Unit: 1000 As it has been revealed in this table Toyota has increased in 2013 so far.1 Recommendations for cost reduction process in Toyota Toyota could apply the strategic cost reduction. 14 . The percentage is the comparison with the previous year (2012) Task 4 4.Investigate around the cause and effect correlation -Communication regularly with managers and staff in order to be up to date against any information within the organisation. (Strategic cost reduction. 2013) On the other hand there are some ways to reduce cost such as quality system management or provide capital for research and development in order to generate valuable. well designed and high quality products.and overseas Japan Toyota and Lexus Mini vehicle Grow %10 Grow %18 Grow % 48 Net revenue Yen Operatin g income Grow %44 Net income Grow %239 Grow %271 (Financial summary. Toyota can provide multitasking process such as’’ milling. In comparison with western countries there is a huge difference. lean management is another way to reduce waste in this organization. flow system and process control. Toyota has to apply some tools to reduce the cost and offer a reasonable price to customers.2 Evaluate the potential for the use of activity based costing Activity based costing (ABC) allows the organisation to allocate costs and a view of the overhead costs therefore the decision making would be much reasonable with this information about costing. The ABC could operate change in a company. Therefore it is wise that Toyota consider some techniques such as six sigma in order to increase the quality to the reach to zero defects. On the other hand. drilling. hence the western companies has begun to use the Japanese costing approach like ABC in order to cover their overhead and making profit. 2013) Conclusion and Recommendations: It would take into consideration that Toyota pricing is the cost leader in the market in other words for keeping price low. the engineers could redesign several times to make sure of its perfection before making the vehicle and having a sample in hand to examine every part on it. The other way could be fully automated car making without any labours or a few labours. although Toyota is following total quality management to keep its product upgrade for customers. 15 . performance management. The ABC could be defined in the distance between the Japanese and western organisations especially in terms of low cost labours in the countries with the undervalued money in addition the ‘’just in time’’ and sustainable improvement. and polishing’’ present in a few processes to shrink the cost. 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