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A Management Accounting Report for Toyota Motor Corporation

In the beginning of the Motor industry it is like a Horseless carriage and soon hailed as the Industry of industries as quoted by the Management specialist Peter F Drucker, and generating employment to every one in seven people around the world and become like a base for every business activity. The techno revolution started in 1910 was made big changes in the mobilisation or transport. Later the Japanese companies followed many revolutionary techniques in production and technology of the automobiles. The one of the great contributors to the development of the automobile sector is Toyota Industries later known as Toyota Motor Corporation (TMC)

Toyota Motor Corporation one of the top performers in the automobile manufacturers in the world shortly known as Toyota and abbreviated as TMC has a great history over 73 years founded by Kiichiro Toyoda in 1937, it was a development of Toyota industries started by his father. Toyota Motor Corporation is a part of the Toyota group and one of the largest auto players in the global market.

Since Toyota’s founding we have adhere to the core principle of contributing to society through the practice of manufacturing high quality products and services. Our business practices and activities are based on these core principles created values, beliefs and business methods that over the years have become a source of competitive advantage. These are the managerial values and business methods that are known collectively as the Toyota way.

Background of the Company:

History of the company:

In the beginning of the Motor industry it is like a Horseless carriage and soon hailed as the Industry of industries as quoted by the Management specialist Peter F Drucker, and generating employment to every one in seven people around the world and become like a base for every business activity. The techno revolution started in 1910 was made big changes in the mobilisation or transport. Later the Japanese companies followed many revolutionary techniques in production and technology of the automobiles. The one of the great contributors to the development of the automobile sector is Toyota Industries later known as Toyota Motor Corporation (TMC)

Toyota Motor Corporation one of the top performers in the automobile manufacturers in the world shortly known as Toyota and abbreviated as TMC has a great history over 73 years founded by Kiichiro Toyoda in 1937, it was a development of Toyota industries started by his father. Toyota Motor Corporation is a part of the Toyota group and one of the largest auto players in the global market.

Since Toyota’s founding we have adhere to the core principle of contributing to society through the practice of manufacturing high quality products and services. Our business practices and activities are based on these core principles created values, beliefs and business methods that over the years have become a source of competitive advantage. These are the managerial values and business methods that are known collectively as the Toyota way.

Fujio Cho, President Toyota

(From Toyota way document, 2001)

Toyota’s main products include: Robotics, Financial services and biotechnologies along with its lion share Automotives. The following is the detailed list of its product category in Automobiles

The product line includes

Electric technology (Plug in Technology, hybrids, pure Electric vehicles)

Cars (Sports utility vehicles, luxury type vehicles, and pickup trucks)

The electric technology was developed and produced in Japan, US and some European countries. The recent times importance for non polluted vehicles is increasing and many countries are encouraging this hybrid and pure electric vehicles. Keeping these things in mind it is concentrating more on the electric vehicles and recently announced that it is going to release its plug in hybrid vehicle in2011 and this may become a revolution in the industry and this may price around 20,800 pounds

The company has the Management Philosophy called just in time that led them as Industry leader by 2008 with a record sale of vehicles. It achieved many mile stones in its history like introducing hybrid vehicles, plug in vehicles and many other things.

Review of management accounting:

"A management accountant applies his or her professional knowledge and skill in the preparation and presentation of financial and other decision oriented information in such a way as to assist management in the formulation of policies and in the planning and control of the operation of the undertaking."

(ICMA)

Management accounting is one of the tools that are used to analyse the performance of the organization. The managerial accounting was done by using the accounting data provided by the internal accounting department and was done by the employees of the organization in most of the occasions.

The main Functions of the Management Accounting:

Cost Analysis: It was intended to do the cost based analysis, i.e. the total costs incurred to perform a particular task or project in a particular period and the effectiveness of the costs incurred and the areas where the costs are high and where the costs are to controlled are to be highlighted in the Managerial accounting.

Budgeting: Managerial Accounting tries to estimate the future expenses and revenues, and generally it is known as budgeting. This is one of the crucial function of the Management Accounting

Increase Efficiency: The Management Accounting tries to identify the inefficiencies of the management by identifying where the costs are high and where the excess use of resources takes place and give a clear analysis of these things.

Planning and Controlling: The planning and Control of the activities done by Management Accounting through preparing revenues report and sales backlogs if any and tries to give proper direction.

Coordinating: you may be surprise to here that Management Accounting can coordinate the departments, its true it makes coordination between departments by taking the needs for the future and allocating the needed resources through budgeting.

The key Techniques of Management Accounting:

Ratio Analysis: Financial ratios can be applied to the financial statements to asses the success or failure of the business and future prospects of it.

Analyzing the management of Working Capital Management: it tries to analyze the Credit controls supplier payments and work in progress activities to assess the effective use of Working Capital Management. The following are the few techniques to be noted

Stock Valuation

Determining the Economic Order Quantity

Stock Valuation and pricing

CVP analysis

Developing budgets and Planning: To prepare the budgets for the future and planning of the activities the Management Accounting techniques can be used. Here are few to mention

Payback

Discounted Cash flow(DCF)

Internal Rate of Return(IRR)

Capital budgeting

Weighted Average cost of Capital

Inventory Control: using Management Accounting management can control the inventory. The following are some of the techniques to implement

Investment Centres

Profit and Contribution centres

Revenue Centres

Cost or expense centre

3. The key Techniques and Methods Recommended to the Toyota Motor Corporation:

A Brief Analysis of the Toyota Motors Corporation (TMC):

Few facts about the company:

Since 2008 the company cost of sales has been declined and the main reason is call backs made by the company due to Accelerator pedal issue and some engine faults, especially the sales in American has been declined and the competitors gained advantage

The rate of profit after tax has been also declining for the last several years consequently, and company need to take some initiatives in this regard to revamp the sales, i.e. either introducing the new models or making promotions aggressively for short time is needed.

The employee profitability also declined year by year and this led some problem to the company.

Instead of increasing the sales the company has marked sales decline of 0.4% for the year, especially in the month December 2010 the company has scored 5.5% sales decline, where as the competitors Hyundai gained 33%, Honda gained 21% and Nissan motor Co also gained 28% increase in sales

The company was facing huge competition from its competitors even in its highest sales market United States, thus company need to make some important decisions to revamp the sales and to gain advantage over market. Following are some of the techniques that the company must include in the Management accounting to make the future decisions

Suggested MA Techniques:

Investment Appraisal: The Investment appraisal is one of the important tool to be operated for measuring the effectiveness of the overseas and domestic performance of the company and for its future investment, to invest properly in the oncoming projects. The benefits of the investment are always long term but still we must carefully asses the performance using proper techniques. For instance calculating the payback period for the project and costs involved in that will give a proper investment appraisal to the company

Payback period of multiple projects can be calculated and assed their performance individually will give a clear picture on the each project performance over a period of time. But it should keep in mind the future prospects of the each project and then make the decision every time.

Market Orientation: for the automobile companies market orientation is very important, the needs and the wants of a particular market has been changed over a period of time, this can be understood by the profit and loss statement of the company. Toyota can be analysis its market orientation appraisal by its P/L statements of individual markets or territories.

The market orientation is very important to budget allocation and planning for the future projects for the specific market of the company. If the Profit is low and losses are high it is better to make some changes in the budget allocation to a market, for instance in US the sales of the company has declined over the last two years and the competitors like Ford are gaining advantage over the US market due to the Pedal issues took place in 2008 to correct this company need to put more emphasis on Customer relationship and Marketing activities to prevent the loss.

Cost Management: To get the best results out of the costs incurred in various departments and their activities and the results company need to analyse the costs, these costs may include cost accounting in Research and Development, design, Purchasing, Production, Marketing, Distribution, Customer Service and resource Planning etc

The cost Management will enables the management to asses where the costs are being high and where the resources are being wasted and how to cut down the costs are to be reviewed effectively.

Stock Valuation: in cost analysis stock valuation is one of the important concepts, as Toyota is operating in Manufacturing based business, the inward goods and its consumption is very high and as a result the stock valuation will be done on regular basis, this can be done carefully to avoid the excessive costs. This can be done either by the following methods

LIFO method, FIFO method, Average cost, Replacement Cost method

EOQ: The Manufacturing sector need vary much high investment in goods. The costs involved in this are very high. Especially the stock keeping costs are high. To know the EOQ value for a good we can use the following formula

Q = d for period*Cost per order/Holding cost per unit

Q =

CVP analysis: The CVP analysis is used to measure the profit in terms of the utilizations and usage of the stock to make the long term planning if needed to focus on the variable costs. This can be calculated in the following manner

Profit = Revenue – Expenses

Profit = Revenue – (Fixed Costs+ Variable Costs)

Thus the business will begin to make profit beyond the level of activity where revenue equal expenses, known as breakeven point

As the company is operating in a highly competitive market so it needed to maintain good profits, this can be achieved through better operations management techniques like Just in time etc.

Capital budgeting: Using the Capital Budgeting techniques can enables the Management to assess the companies’ effective use of inflow of the cash and out follow of the cash. The best capital budgeting technique to use is calculating Net Present Value (NPV) of the company. The net present Value of the investment best described as the present value of the cash inflow minus present value of the cash out flow

NPV = PVB-PVC i.e. Present value of the Benefits –Present Value of the Costs

If the NPV value is positive then we can expect more than minimum rate of return

If the NPV value is negative we can expect less than minimum rate of return on investment in such case we can reject the investment

If the NPV is neutral we can say that it means that benefits equal to Costs

The NPV calculation is the best process for capital budgeting and this can describe the status of investment and return o it

The Strengths and Weaknesses of Analysis:

The Management accounting is the very key object to be done on regular intervals it might be crucial in taking further decisions by the management and the report may reveal the some of the important aspects that could help the management to go further

As the report of management accounting need the real time data and it was done on the basis of weekly and monthly, the report need the data as well. Usually the company do this management accounting through the internal employees or especially by the Accounting department

Though the Cost management is needed in the present context it could not be possible as the increase in the marketing efforts made by the competitors made the company go further to spend on marketing and customer support activities.

The costs of the company has been increasing as the costs of the raw material and other spares, and crude oil prices are being increasing day by day, it is compulsory to the company to keep spending money on this issues.

Conclusion:

It is concluded that the company need to be revamp on the basis of its quality control and it has to put more efforts on the investment appraisal, market orientation, cost management and capital budgeting as there are the very important issues to keep maintain in the present context. And it has to explore more options to enter in to new markets and strengthen its existing markets share. The efforts to put the saes to be revamped are more on its high priority at the movement. The capital budgeting efforts to be made more concentrated to be effective budgeting and controlling for the future expenses.


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