Toyota Ltd Cost Analysis Budget

This assignment presents a detailed cost analysis of Toyota Ltd., focusing on various budgetary aspects. It includes sales budget projections for July, August, and September, outlining sales units, price per unit, and total revenue. The production budget details the number of units produced, cost per unit, and total production costs. Additionally, it examines direct material, direct labor, and direct variable overhead budgets for each month. Tables present quantitative data for each budget category.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1) ROLE OF MANAGEMENT ACCOUNTANT FOR PLANNING AND CONTROLLING
BUSINESS ACTIVITIES OF TOYOTA (300)..............................................................................1
2) COST CLASSIFICATION AND BEHAVIOUR (650)..............................................................2
Reasons behind cost classification on the basis of their.............................................................2
3) SEVERAL BUDGETS FOR TOYOTA ....................................................................................5
Sales budget................................................................................................................................5
Production budget.......................................................................................................................5
Direct material budget.................................................................................................................5
Direct labour budget....................................................................................................................5
Variable overhead budget...........................................................................................................6
Importance of preparing and identified budgets.........................................................................6
4) SIGNIFICANCE OF VARIANCE ANALYSIS.........................................................................6
CONCLUSION................................................................................................................................6
REFERENCE...................................................................................................................................8
APPENDIX......................................................................................................................................9

INDEX OF TABLES
Table 1: Direct material cost card....................................................................................................4
Table 2: Labour cost card................................................................................................................4
Table 3: Variable overhead cost card...............................................................................................4
Table 4: Sales budget for Toyota Ltd..............................................................................................9
Table 5: Production budget for Toyota Ltd.....................................................................................9
Table 6: Direct material budget for Toyota Ltd...............................................................................9
Table 7: Direct labour budget for Toyota Ltd................................................................................10
Table 8: Direct variable overhead budget for Toyota Ltd.............................................................10

INTRODUCTION
Management accounting is multidisciplinary approach which is helpful for decision
making and preparing strategies for creating further innovations in business operations. It
includes costing and budgeting for decision making and forecasting for implementations. The
present report is based on understanding ways to cost control for production of goods and
services as well increasing profitability for Toyota Ltd working in manufacturing industry. It is
one of the well kn own entity of UK which provides varieties of cars and vehicle equipment to
million customers globally. In this regard, role of management accountant for decision making
regarding business operations for entity is to be described (Management Accounting, 2016).
However, cost classifications and characteristics can express through this assignment. Moreover,
different budget as estimation for incurring expenses including sales, purchase, material and
overhead is to introduced. In order to this, importance of variance analysis for effectiveness of
Toyota can identify. Thus, students are able to understand several tools and aspects of
management accounting through this report for decision making related to business operations
for entity deeply.
1) ROLE OF MANAGEMENT ACCOUNTANT FOR PLANNING AND
CONTROLLING BUSINESS ACTIVITIES OF TOYOTA (300)
To
CEO
TOYOTA Ltd
As per the case scenario, it is recognised that Toyota is planning to cost effectiveness
and increasing its profitability. For this purpose, management accountant of the entity plays
crucial role in relation to planning and controlling over business activities (Akyol, Tuncel and
Bayhan, 2015). However, contribution of management accountant for organisation's
effectiveness can describe below:
 Stewardship accounting: Management accountant of Toyota prepares and maintains
financial transactions of the entity. In this regard, actual economic position of
organisation is presented in a systematic manner. However, different business
operations including sales, purchases, overhead and other transactions are maintained
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(Chouhan, Soral and Chandra, 2017). In addition to this, he ensures monetary security
of the company to present all transactions. Thus, expenses incurred and gained revenue
for business operations are recognised through this accounting system. Moreover,
different financial statements and notes are prepared by management accountant that
shows economic position of entity. Therefore, stewarding accounting is one of the great
function of management accountant to maintain financial security of the entity.
 Decision making process: Management accountant of the entity plays crucial role in
decision making for long-term and short-term period. Including this, he forecasts and
makes decision regarding business operations in future time period to achieve its
effectiveness. Thus, corporate strategy, formulating, market strategy are evolved
through this accounting system (El and Lindefors, 2016).
 Management Information System: Several information related to business operations
including financial and non-economic are exchanged as well presented by management
accountant. In this regard, discussion about business operations generates different ideas
for optimum utilization of resources and fund (Johnson, 2014). It influences
productivity and profitability of entity. Therefore, appropriate decisions can be made
through this process which remains useful for providing better services.
Thus, from above mentioned performances of management accountant, it is recognised
that he plays vital role in decision making process for Toyota Ltd. However, effective planning
and controlling over business operations and improving its efficiency. It is useful for adequate
allocation of resources and fund that impacts on production system of goods (Laviana and et.al.,
2016). Hence, cost effectiveness for producing cars and vehicle equipment as well profitability
of entity can be improved by effective contribute in planning and decision making for entity's
effectiveness systematically.
2) COST CLASSIFICATION AND BEHAVIOUR (650)
Reasons behind cost classification on the basis of their
a)Types: Types of cost is classified in Direct and indirect costs, Cost which are
accurately traced by Toyota are its direct cost and it is, in contrast to variable cost (Akyol,
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Tuncel and Bayhan, 2015). Further, not just the salary and wages of employees but the regular
expenses, cost incurred on production of spare parts etc.
Indirect cost which can not be determined exactly, activities which are not regularly
practised in the company and whose cost cannot be traced like for example, cost of depreciation,
salaries and wages, power, occurred in the manufacturing plant.
b) Behaviour: Behaviour: On the basis of behaviour cost is divided into some categories
like, fixed cost, variable cost and semi variable cost.
Fixed Cost: The fixed cost remains unaffected in given period, it does not change with
changes in output and input in the company (El and Lindefors, 2016). For instance, Toyota's
every year depreciation, rent, insurance, property tax, utility remain unchanged and helps in
controlling cost and maximizing profits.
Variable Cost: Increase input and output lead to increase in variable cost and decrease in
input and out lead to decrease in variable cost. Toyota need to control its variable cost like labour
cost, salary and wages, delivery charges, shipping charges to increase its net turnover.
Semi-variable cost: This is the mixture of both cost that is variable and fixed cost, it
keeps on changing a per the volume but not in direct proportion (Johnson, 2014). Like for
example, If Toyota increase the level of production line operations it will lead to change in cost.
c) Functions: Cost of the company is divide into several functions such as production,
administration, selling, finance, distribution, research and development, quality check etc.
Toyota controls its production cost by controlling salaries, labour related expenses, store
expenses etc (Najjar, Strickland and Kaplan, 2016).
The company can monitor its administration cost by keeping a check over charges levied
by bank, office related depreciation, audit and legal fees.
Distribution cost of Toyota includes transportation costs, warehouse rents, commission to
distribution channel etc.
d) Relevance: Companies cost can be relevant and irrelevant, this classification of cost is
helpful for managers in decision making (Sandborn, 2017). In Toyota, when different aspects of
activities are considered, like manager need to select the best alternative which would be
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profitable for the company. For instance, If Toyota plans to shut down its unit or want to accept
orders at low prices. This helps the manager to evaluate and measure the consequences.
Cost card preparation:
1) For Direct material:
Table 1: Direct material cost card
Month July August September
Material 500 700 900
Cost per unit (￡) 5 5 5
Total cost (￡) 2500 3500 4500
Interpretation: It is estimated that in July, material is produced of 500 units, as well in
further months like August and September are 700 and 900 respectively. For which, cost per unit
for each month is forecast as 5. Therefore, total cost estimated for all three months are estimated
as 2500, 3500 and 4500. Thus, cost incurred for all three months will be enhanced by 1000 per
month.
2) Labour cost card:
Table 2: Labour cost card
Month July August September
Number of labours 500 700 900
Cost per unit (￡) 8 8 8
Total cost (￡) 4000 5600 7200
Interpretation: As per labour cost card preparation, it is identified that number of labours
for July, August and September are expected as 500, 700 and 900. For this costing, cost per
worker is to estimated as 8 in all months for all three months. Hence, total cost to be obtained for
three months would be 4000, 5600 and 7200. Thus, it is required to controlling over it and
preparing strategies for cost effectiveness.
3) Variable overhead cost card:
Table 3: Variable overhead cost card
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Month July August September
Overhead 500 700 900
Cost per unit (￡) 4 4 4
Total cost (￡) 2000 2800 3600
Interpretation: For further three months- July, August and September, cost to be incurred
are estimated as 2000, 2800 and 3600 which is increasing continuously. It will not be so effective
for Toyota Ltd and its effectiveness. Therefore, it is needed to monitor estimated incurred cost
either by decreasing production units or by its cost per unit.
3) SEVERAL BUDGETS FOR TOYOTA
Sales budget
It is estimation for total amount to be gained on selling cars and vehicle equipment of
Toyota Ltd. Thus, for July, August and September sales units to be produced are estimated as
10000, 12000 and 14000. However, sales cost per unit for each month is forecast as 8. Therefore,
total cost over selling items are budgeted as 25000, 300000 and 350000. Thus, it is forecast that
organisation can earn effective revenue on selling products in future months which will be
effective to improve its profitability. (See appendix 1st).
Production budget
It is budget for estimating returned amount on producing goods and services provided by
Toyota in future time. In this regard, it is estimated that production in units for three months are
estimated as 12000, 13000 and 15000 on which for each year, cost per unit is set as 5. Therefore,
required production is forecast as 60000, 65000 and 75000. In this regard, planned inventory for
months are estimated as 500, 600 and 700 and further amount required to be incurred for July,
August and September are estimated as 605000, 65600 and 75700 which will be in favour of
entity's profitability. (See appendix 2nd).
Direct material budget
For further months as July, August and September, cost per production unit is 5 on each
production unit. Therefore, total cost is estimated to be incurred are as 60000, 65000 and 75000.
Through it may by heavy investment for Toyota Ltd but it is estimated that cost effectiveness can
obtain as well profitability of entity can enhance effectively. (See appendix 3rd).
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Direct labour budget
Production units for July, August and September are estimated as 12000, 13000 and
15000. However, cost per unit is set as 8 for each month for wages, salary, it is forecast that
company can earn 96000, 104000 and 120000 in next months continuously. Thus, it is quite
effective estimation for further years and profitability of entity efficiently. (See appendix 4th).
Variable overhead budget
Additional expenses incurred on producing cars and vehicle equipment of Toyota,
production units are estimated as 12000, 13000 and 15000 as well cost per each production is
forecast as 4. Thus, organisation can earn 48000, 52000 and 60000 regularly which will be in
favour for its profitability effectively. (See appendix 5th).
Importance of preparing and identified budgets
Budget is a process for analysing actual position of Toyota Ltd and preparing plans
including forecasting and decision making regarding future business operations (Najjar,
Strickland and Kaplan, 2016). In order to this, significance for preparing budget can understand
as below:
 It is helpful for best use of material and fund to be required for further production and
distribution of goods and services provided by Toyota Ltd.
 Through preparing budget, systematic planning procedure can prepare to be followed in
proper time and estimated cost to be incurred for further business operations (Sandborn,
2017).
 Several ideas are generated for better services and improving profitability of entity
working in manufacturing industry.
4) SIGNIFICANCE OF VARIANCE ANALYSIS
Variance analysis is one of the essential management accounting tool to identify
difference between actual and standard position of Toyota Ltd (Chouhan, Soral and Chandra,
2017). For this purpose, management accountant of the entity analyses following comparisons
between production of cars in terms of material, labour and overhead.
CONCLUSION
As per the project report, it is concluded that management accounting is one of the
essential approach for decision making and planning for future business operations. In this
regard, different costing for purchasing material, labour and additional overhead are estimated.
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However, cost classifications in different contexts of types, behaviour, relevance are understood.
In addition to this, different budgets for decision making and further business operations are
forecast for further months' operations evolving July, August and September. However, variance
analysis for production and distribution of cars and vehicle equipment are presented that requires
to create bridge the gap for entity's effectiveness. Thus, management accounting and its different
aspects are understood through this report for further decision making and business operations
effectively.
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REFERENCE
Books and Journal
Akyol, D.E., Tuncel, G. and Bayhan, G.M., 2015. A comparative analysis of activity-based
costing and traditional costing. World Academy of Science, Engineering and
Technology. 3(2). pp.44-47.
Chouhan, V., Soral, G. and Chandra, B., 2017. Activity based costing model for inventory
valuation. Management Science Letters. 7(3). pp.135-144.
El Alaoui, S. and Lindefors, N., 2016. Combining Time-Driven Activity-Based Costing with
Clinical Outcome in Cost-Effectiveness Analysis to Measure Value in Treatment of
Depression. PloS one. 11(10). p.e0165389.
Johnson, P.F., 2014. Purchasing and supply management. McGraw-Hill Higher Education.
Laviana, A.A. and et.al., 2016. Utilizing time‐driven activity‐based costing to understand the
short‐and long‐term costs of treating localized, low‐risk prostate cancer.Cancer. 122(3)
pp.447-455.
Najjar, P.A., Strickland, M. and Kaplan, R.S., 2016. Time-Driven Activity-Based Costing for
Surgical Episodes. JAMA surgery.
Sandborn, P., 2017. Activity-Based Costing (ABC). In Cost Analysis of Electronic Systems.
14(2). pp. 77-92.
Online
Management Accounting. 2016. [online]. Available through:
<http://www.ddegjust.ac.in/studymaterial/mcom/mc-105.pdf>. [Accessed on 14th July
2017].
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APPENDIX
Different types of budgets:
1) Sales budget
Table 4: Sales budget for Toyota Ltd
Month July August September
Sales units 10000 12000 14000
Sales per unit (￡) 25 25 25
Total sales (￡) 250000 300000 350000
2) Production budget:
Table 5: Production budget for Toyota Ltd
Month July August September
Production (in units) 12000 13000 15000
Cost per unit (￡) 5 5 5
Total cost 60000 65000 75000
Planned ending inventory 500 600 700
Total production required 60500 65600 75700
Beginning inventory 500
Total production required (￡) 60000 65600 75700
3) Direct material budget
Table 6: Direct material budget for Toyota Ltd
Month July August September
Production (in units) 12000 13000 15000
Cost per unit (￡) 5 5 5
Total cost 60000 65000 7500
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4) Direct labour budget
Table 7: Direct labour budget for Toyota Ltd
Month July August September
Production (in units) 12000 13000 15000
Cost per unit (￡) 8 8 8
Total labour cost (￡) 96000 104000 120000
5) Direct variable overhead budget
Table 8: Direct variable overhead budget for Toyota Ltd
Month July August September
Production (in units) 12000 13000 15000
Cost per unit (￡) 4 4 4
Total labour cost (￡) 48000 52000 60000
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