Financial Governance and Growth of Toyota

The assignment evaluates the financial problems of Toyota company and suggests that it needs to adopt management accounting systems, prepare various accounting and reporting systems, and implement budgetary control strategies to utilize available resources optimally. It concludes that successfully managing and resolving financial issues increases the chances of achieving maximum profit and efficiency.

Management
and
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Management accounting and essential requirements of its different accounting system.....1
P2. Techniques of management accounting reporting methods..................................................3
M1: Benefits of accounting system.............................................................................................5
D1:Critical analysis of reporting system.....................................................................................5
TASK 2............................................................................................................................................5
P3. Different costing method to determine Net profitability......................................................5
M2: Evaluation of management accounting techniques.............................................................8
D2: Analysis of income statements.............................................................................................8
TASK 3............................................................................................................................................8
P4: Benefits and limitation of using planning tools....................................................................8
M3: Evaluation of planning tools..............................................................................................10
D3: Tools used for resolving financial issues...........................................................................10
TASK 4..........................................................................................................................................11
P5: Various measures to resolve financial problems................................................................11
M4: Evaluation of financial issues............................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................13
...................................................................................................................................................14

INTRODUCTION
Management Accounting is necessarily required in every business in order to manage and
control accounting reports and informations of business organisation which help them to know
their true and fair financial position of business. The manager of accounts and finance
department is held responsible to prepare financial reports using different accounting and
reporting system through which they get accurate and reliable result. The main motive of
preparing this report is to evaluate the importance of management accounting system in
formulating effective decision of an business operations of an organisation (Ahmad and
Kamilah. 2013). Using different planning tools and techniques by manager in order to resolve
financial issues are briefly discussed in this project report. This project also covers various
costing methods which help in analysing profitability of company. As mentioned in brief of this
report, Company named Toyota Plc Ltd which deals in auto mobile sector is selected for the
preparation of this report.
TASK 1
P1. Management accounting and essential requirements of its different accounting system
Definition of management accounting:
 As per Management Accounting Practices Committee(MAPC) it refers to process of
identifying, measuring, preparing and interpreting the financial information which help
manager to formulate effective plan in order to ensure proper utilisation of resources.
 As per Chartered Institute of Management Accountants(CIMA) it is considered as an
integral part of management which is related with identifying and interpreting financial
information in order to formulate strategy and effective decision making process.
Functions of Management accounting:
Planning: The manager need to formulate effective plan and strategy related to the
effective utilisation of resources while achieving desired goals and objectives within specified
time period.
Organising: It is a process of organising organisational structure and accordingly
delegate responsibilities to employees to achieve desired targets (Bodie, 2013). There are
different managers in different departments of an organisation and it is important to provide them
their roles and responsibilities with the help of which they perform in better way.
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Controlling: It is a process of identifying the deviations and problems that an
organisation faces during business process and therefore control such deviations in order to
achieve desired objectives (DRURY, 2013). The manager need to focus on controlling the
activities of misrepresentation's of data in order to get accurate and reliable result.
Decision-making: With the help of available resources the manager need to make
effective decision which help in motivating and directing employees to perform their delegated
task in an effective manner in order to achieve desired goals and objectives.
Difference between Management accounting and financial accounting:
Basis of Difference Management accounting Financial accounting
Main objective Its main aim is to manage and
control accounting reports and
information which help in
making effective decision to
achieve desired targets.
Its main aim is to provide
details to outside parties such
as creditors, investors etc.
which help them in taking
informed decision.
Regulatory Requirements Institutes such as CIMA,
ICWAI frame some standard
and guidelines to regulate
management activity.
It is essentially required for
company to follow company's
law and regulation
implemented and governed by
government.
Principles of governing There us no basis of preparing
management accounting.
With the help of Generally
Accepted Accounting
Principles(GAAP) financial
accounting statements are
prepared.
Perspective It has futuristic perspective. It has historic perspective.
Essential requirements of different accounting system:
To monitor and control business operation it is essentially required for manger of Toyota
Plc Ltd. to adopt various types of accounting systems:
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Cost accounting system: Its main motive is to control and minimise irrelevant cost
incurred in the manufacturing process and should focus on investing money in important areas of
department where they get more outcome. Therefore manager of Toyota company need to
effectively use cost accounting system in order to ascertain profitability and productivity of
company (Herzig and et. al., 2012). For example Using various cost such as normal, actual and
standard cost to analyse cost incurred in manufacturing process. Using this tool the manager can
control cost incurred in business operation of Toyota company through which they can provide
products at less cost to the targeted customers.
Inventory management system: With the help of this system the company reduces
inventory storage cost. The manager need to decide when to order stock and how much which
help them in minimising storage cost as well as help in eliminating any wastage or spoilage of
stock. The manager of Toyota company need to manage their inventory on regular basis and also
need to use ABC costing and stock turnover ratios in order to forecast the actual position of
inventory.
Price optimisation system: It is considered as an important tool used by company to set
the prices of their product that their customers can afford. It is done through mathematical
analysis in order to determine that how customers will react towards the prices of their products
and services. Therefore it is important of manager to set the effective price of their product
which can fulfil both customers and company's objectives. It is essentially required for company
to adopt this system through adding value to the product which attracts large number of
customers to purchase their product.
Lean accounting: This accounting system is used to change accounting and management
process of Toyota company that will help them in cacheing profitability. This techniques should
used by product engineers of Toyota company to know the cost accounting information which
help in taking effective decision about secondary materials (Kotas and Richardoutledge, 2014).
The main objective of this system is to engage employees in reducing cost and improvement
operations in order to achieve profitability of company.
Job costing system: It is a system used by company in order to gather information about
the cost incurred in the production process. It is considered as an efficient method which help
company to calculate material required in manufacturing process such as materials, labours and
overhead. This will help in evaluating profitability and help company in deciding whether they
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want to product that product or not. The gathered information helps company to assign cost to
manufacture a particular product.
P2. Techniques of management accounting reporting methods
Accounting reports contains material accounting information and data of Toyota
company which further help company in making effective decision (Nixon and Burns, 2012).
Such accounting reports include profit and loss statement, balance sheet and cash flow statement
which represent the true and accurate financial position of company. With the help of accounting
reports, investors has easily attracted towards the company and decided whether they want to
invest in particular company or not. Therefore it is important for manager of company to prepare
accounting reports to determine their exact demand and position of company. Through getting
accurate information the company able ton understand their actual position in competitive market
which help them in formulate effective plans and decision making to achieve future
sustainability and profitability (Quinn, 2014). Therefore it is necessarily required for accounting
manager to collect accurate and correct information and on the basis of which they can prepare
the reliable accounting reports. Ii is helpful in analysing and comparing the actual performance
with the standard performance of different departments of company which directly help in
achieving their desired goals and objectives. If the manager fail to collect true and accurate data
and information and show the wrong accounting reports to their investors and public then it will
damage the goodwill and reputation of company in competitive market world (Ward, 2012.
Therefore accounting reports represent the overall performance of company. Through accounting
reports the company can able to forecast their future sustainability and growth.
Types of reporting system:
Performance reporting system: The manager should prepared accounting reports
containing accurate and true information and data which shows the true and fair financial
performance of Toyota company. This will help company in analysing the performance of
employees as well as organisation during the accounting year.
Inventory management system: Its main objective is to manage and control inventories
through recording various material information about inventory position. There are various tools
such as Economic Order Quantity(EOQ), ABC costing and inventory turnover ratio which help
company to record their inventories in proper manner.
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Account receivable report: This reports shows the receipt and payment made by
company. It will help company in knowing that to which party they want to make payment and
from which party they want to receive (Renz, 2016). This will help company to examine the total
time and amount that to be recovered in future from different clients of company..
Job costing report: This report indicates the total amount that to be incurred in
production process of goods and services during the accounting year. The manager need to
collect information about resources such as materiel, labour and overhead that to be used by
company while manufacturing their products.
Operating budget report: The manager need to use this system to obtain information
about the cost that to be incurred by company during one accounting year (ter Bogt and van
Helden, 2012). This will help company in estimating budget for the upcoming years which help
them in preventing shortage of funds situations through which they can get accurate and positive
result
M1: Benefits of accounting system
Job costing systems:
Advantages:
 It helps management to assign cost to manufacture specific product after analysing the
outcomes received in future.
 It improves the performance of different departments.
Inventory management system:
Advantages:
 It ensures production department to get raw material used in production process on time
through which they can produce demanded products and meet customer's requirements.
 It helps in minimising inventory cost due to storing required stock only in warehouses.
In order to control and analyse the financial statements of Toyota company the manager
need to use management accounting system such as price optimisation and inventory
management in order to achieve best possible outcomes. Through managing and evaluating
accounting reports and policies the company can easily achieve efficiency and profitability
which help them in attain desired goals within specified period of time (P. Tucker and D. Lowe,
2014).
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D1:Critical analysis of reporting system
Types of reporting Integration with organisational process
Account receivable report It helps manager of Toyota to identify unpaid
debtors and take corrective measures to
recover unpaid amount from them.
Job cost report It helps in allocation of cost to produce specific
product which reduce the chances of wastage.
TASK 2
P3. Different costing method to determine Net profitability
Costing refers to expenses incurred in manufacturing products and services by the
company with the available resources. If the company focuses on adding features or enhance the
quality of its products then the company need to invest more amount which affect the
profitability as well as growth of company (Luft and Shields, 2010). Therefore in order to
manufacture product the company need to incur other costs such as normal, standard and actual
cost. These all such cost are related with cost of production. Manager of Toyota company should
target tom minimise cost with a motive of generating huge profits. Therefore manager need to
allocate and utilise resources in diffe4rent areas of department where the chances of getting
positive result will be high. In recent years the company prefer to use ABC costing which help
them in getting cost effective result. For Toyota company. Therefore in order to enhance
performance and productivity of company the manager need to use following costing methods in
an effective and efficient manner.
Marginal costing: It is the cost which is incurred by company to manufacture additional
unit with the same resources. Through prime cost the manager able to calculate marginal cost
incurred during production process. Its main part is that it avoids fixed cost (Cinquini and
Tenucci, 2010). This will help manager to obtain information about profits and sales of
company.
Absorption costing: It includes direct cost associated with production process such as
wages paid to workers to manufacture product or raw material which are used in manufacturing a
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product and overhead cost which improves utility of product. In this costing fixed cost is used to
determine the bet profitability of company.
Difference between Absorption and marginal costing:
Marginal costing Absorption costing
It is used in making effective decision to
achieve desired targets.
It is used to prepared report for outside parties.
In this, variable are valued at variable cost of
production.
In this, the values of inventory are higher than
in absorption costing as compare to marginal
costing because inventories are valued are total
production cost.
It is considered as effective costing methods
which help manager to take future decision.
It is not effective while taking effective
decision.
Cost per unit remain same during production
level.
With the help of this costing method cost per
unit should decreases whereas cost of
production increases.
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P3
Calculation of an income statement under absorption and marginal costing
Income statement under
Absorption cost
Sales revenue (1500x £200) £300000
Cost of sales:
Direct material (1500x £45)
Direct labour:
Production labour : (1500/1) x 4hrs x £6
Labour of dispatch dept: (1500/10) x 1hr
x £30
Packing boxes (1500x.5)
Fixed overheads:
-Production dept (1500/1 unit) x 4hrs x
£7
-Dispatch dept : ( 1500x £6)
Cost of producing 1500 units under
absorption costing :
Less: closing stock:
Closing stock of unpacked (500 units):
(W2)
Cost of packed units(14600)
Cost of sales (14600 units)
£67500
£360 00
£45000
750
£420 00
£9000
---------------
£200250
(£22500)
(£177750)
Gross profit / Loss £122,250
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Income statement under
Marginal costing
Sales revenue (1500 x £200) £300000
Cost of sales:
Direct material (1500 x £ 45)
Direct labour:
Production labour : (1500/1) x 4hrs x £6
Labour of dispatch dept: (1500/10) x 1hr x
£30
Packing boxes (1500x1)
Total Variable Cost to produce 15000 units
under marginal costing
Less: closing stock:
Closing stock of unpacked (500 units): (W1)
Cost of packed units(.5)
Cost of sales (1500 units)
£67500
£360 00
£45000
£1500
------------
£151500
(£27 600)
(£7500)
(£114900)
Contribution: £181500
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Less:
Fixed overheads:
-Production dept (1500/1 unit) x 4hrs x £7
-Dispatch dept : ( 1500 x £6)
Total fixed overheads
£42000
£9000
(£51000)
Gross Profit /loss £130500
From the above calculation, Toyota company need to use both absorption and marginal
costing in order to determine actual net profit/net loss of company. The manager should select on
which provide maximum and accurate outcome.
M2: Evaluation of management accounting techniques
If an organisation is successfully applied management accounting techniques then the
chances of achieving desired profitably and sustainability are more (Fullerton, Kennedy and
Widener, 2013). Therefore it is the responsibility of manager to adopt use effective accounting
techniques and tools such as statistical and graphical tools which help managers to take effective
decision. Report also play an important role in communicating data to various level of
departments which help them in providing direction and guidance in order to achieve desired
goals.
D2: Analysis of income statements
From the above financial statement which is prepared on the basis of assumptions is
helpful in evaluating the changes in net profit through adopting two different costing methods.
For Toyota company these two methods is useful in determining the actual profitability which
help them in formulating future business plan.
TASK 3
P4: Benefits and limitation of using planning tools
Planning tools also play an important role in determining the performance of company
through providing accurate result which help in making effective decision. With the help of
necessary planning tools the company should prepare true and accurate financial position of
company which help company in knowing about their stability and growth in future
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(Baldvinsdottir, Mitchell and Nørreklit, 2010). It is also important for company to understand
about budget and its corrective measures which help in determining effective planning tools.
Budget refers to estimating some amount that to be incurred in execution of business
operations in order too implement corrective actions smoothly. The main motive of preparing
budget is to utilising funds in the business at optimum level. The manager should required to
allocate the budget amount to specific activities on the basis of their outcome received in future.
Budgetary control: It is a system whose main motive is to make proper utilisation of
available resources and reduce wastage and spoilage which help company in achieving
profitability and growth. With the help of budgetary control the manager will determine whether
the strategies of company are followed by members of an organisation or not (Morales and
Lambert, 2013). Through the following budget controlling process the managers can able to get
positive outcome from limited resources:
Formulation of strategies or target of performance: In this first step of budget control
process the manager need to prepare an effective strategies which help them in executing the
further business process in an organised manner. They need to focus on using various alternative
through which they can achieve positive outcomes.
Record the actual performances: After preparing effective strategies the manager of
Toyota company need to record the actual performance of members working in a business
process and thereafter should need to use effective planning tools and techniques in order to
improve their performance to achieve desired targets.
Comparison of actual with the planned: It is necessarily required for manager to analyse
and evaluate performance of members involved in business operations and then should compare
their actual performance to standard performance in order to find out the reasons behind low
performance or deviation that restrict the members to perform their best.
Determine difference, or other variance: The managers also held responsible to first find
out the problems that restrict their members to perform and then should adopt effective
corrective measures in order to avoid such problems or difficulties (Nixon and Burns, 2012).
Respond immediately, if required: This is the last and final step in which manager
should need to reviews and analysis of data gathered in business operations and should need to
contribute their efforts in making some changes if required, to get best possible result.
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Planning tools: It is essentially required for manager to use planning tools in order to
achieve desired objective and goals in an effective and efficient manner. This will help in
executing business activities in proper manner. There are various planning tools which is used to
control budget:
Incremental budget: Such budget is prepared on the basis of previous year budget which
directs management to increase amount in current year budget in order to execute future business
activities in more effective and efficient manner.
Advantages:
 As the management treats every department of an organisation equally while allocating
resources to them.
 The company can easily identify the effects of preparing such budget. It is easy for management to understand such systems and operate.
Disadvantages:
 It is difficult for management to handle risk which occurred due to lots of wastage in
executing future business activities.
 It doesn't provide an opportunity to their employees to bring new ideas and more
creativity as they restricted to perform as per planned.
Zero based budgeting: This is the process in which the company starts from zero in order to
prepare an effective budget. All activities done in future business activities are start from zero.
Advantages:
 The management can bale to allocate funds on the basis of needs and benefits which help
in avoiding unnecessary expenses. The discussion among departments regarding allocation of budget are mining an
purposeful which satisfied management of very department.
Disadvantages:
 The management cannot able to identify the expenses incurred in future project activities
as there is no past experience or record from which they can get help.
 It is expensive process as expert is required who guide management in preparation of
budget.
 Starting from zero created complexities in performing future project activities.
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Activity based budget: It is the process of preparing budget after identifying and
analysing the activities from which outcome should be received in future and accordingly
allocate funds on the basis of outcomes received after completion of such project activities.
Advantages:
 It helps manager reducing cost through getting meaning information about the
opportunities attained in future.
 It helps management to make an effective and quality decision after identifying the scope
of each activity. Helps in proper allocation of cost to various products that may lead to an effective pricing
policy.
Disadvantages:
 It should be not so much helpful to Toyota company in preparing monthly profit
statements.
 If the overheads are relatively small then there is no use of Activity Based Costing.
 It consumes more time to prepare budget due to which execution of future project
activities are delayed.
M3: Evaluation of planning tools
Forecasting and contingency tools need to be used by an organisation in order to evaluate
and estimate sales revenue and expenses incurred during manufacturing process. The manager of
Toyota company need to implement cost effective techniques which help them in reducing
wastage of resources. Successfully implementation of planning tools allow company and its
members to perform in the right direction to achieve desired targets (illard and Roslender,
2011).
D3: Tools used for resolving financial issues
It has been clearly noted that there are some crucial issues which affect the company's
profitability and growth. Such issues are related with finance such as cost control, efficiency etc.
which need to resolved by manager of Toyota company in limited period of time which help
company in achieving its productivity at maximum level.
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TASK 4
P5: Various measures to resolve financial problems
It is difficult for nay organisation to achieve its desired objectives and goals if they faces
financial crisis situation therefore it is important for manager to implement corrective and
effective measures in order to manage such financial crisis in an efficient manner. Financial
problems related with shortage of funds, short term liabilities, low profit etc. which restrict the
company to perform according to their pre-determined plans and strategies. The management of
Toyota company need to focus on identifying the causes or reasons due to which they faced
financial problems and accordingly use effective tools and techniques which help them in
resolving financial issues in an effective manner (Macintosh and Quattrone, 2010). The manager
also need to adopt latest and advanced technology which help them in using the available
resources at an optimum manner. The reasons behind occurring financial issues are conducting
errors in preparing financial records and misrepresentation of data in accounting report
maintained by the members of an organisation which affect the performance of an organisation
in negative manner (Ahadiat, 2013). There are some specific tools which is used to eliminate
financial problems by company. Such tools are as follows:
Key Performance Indicator(KPI): KPI is used in analysing and evaluating overall
performance of an organisation during financial year which help manager to implement
corrective policies in order to achieve desired goals and objectives in an effective and efficient
manner. Toyota Plc Ltd. Company need to adopt KPI'S at different levels to determine the
success in achieving desired objectives. For example At high level department of company,
KPI's focuses on analysing overall performance of company whereas at low level department,
KPI's should focus on developing process in different areas of an organisation in terms of sales,
marketing or call centre. So it is essential for manager to use such key performance indicator in
order to analyse overall performance of company.
Financial governance: The rules and regulation which is formulated by government with
the purpose of implementing them in business operations of company which help in running
business more smoothly. So the manager of Toyota company is also held responsible to follow
such government's rules and guidelines while performing their work. Through such rules and
standards the government able to control and analyse the financial stability and performance of
an organisation. If the manager has lack of knowledge of such polices or fail to comply with such
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rules and polices then it will create a negative impact on the financial stability and growth of
business.
Benchmarking: When the managers of an organisation set up targets on the basis of their
competitors strategies which can achieved within limited time period help an organisation to
achieve competitive advantage. Therefore to achieve such desired goals manager of Toyota
company need top direct and coordinate their employees to perform according to pre-determined
plans and strategies which help an organisation to achieve profitability and growth in future. It is
required for manager to first find out the competitor's future polices and plans and accordingly
set up the targets which increases chances of competing with their competitors in an effective
and efficient manner. This will help company in attaining stability and growth in competitive
environment for longer period of time.
Comparison with other company's
Toyota Plc Ltd. Honda Company
Under this, The Toyota company need to
control their operational activities as the
company is operating at wide scale.
As the company operated its business activities
at a small level as compared to Toyota
company therefore they also require to manage
and monitor its business activities in an
organised manner.
Using KPI tool in company helps management
to identify and evaluate performance of each
department and correcting the deviations, if
any.
SMART tool help management and employees
to know the main objectives ad target the
company wants to achieve in future. Thus, it
brings motivation among them to perform well.
Financial governance should required to adopt
by Toyota in order to run business in market
more smoothly and help in achieving strong
position in market as compared to their rivals.
Benchmarking tool should be used by company
in order to set strategy after identifying their
rivals strategy and accordingly motive ate
employee to perform well. It help them in
competing with Toyota company which is
ahead of their company.
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M4: Evaluation of financial issues
After evaluating financial problems of an organisation, it has been clearly shown that
Toyota company need to use effective techniques and tools which help them in correcting their
financial issues and also need to put their efforts to convert their weaknesses into strengths in
order to achieve desired goals. KPI and financial governance are some important tools which
need to used by Toyota company to analyse overall performance of company during financial
year.
CONCLUSION
From the given report it has been concluded that if an organisation need to achieve
growth and profitability then it must required for them to adopt management accounting system.
Various accounting and reporting system also need to prepared by manager in order to know the
exact financial position of Toyota company. The manager should also need to prepared
budgetary control strategies which enable them in utilising available resources in an optimum
manner. Therefore if an organisation is successfully manage and resolve its financial issues then
the chances of achieving maximum profit and efficiency will be more.
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REFERENCES
Books and Journals
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