Management Accounting Report: Toyota's Business Performance Analysis

This report provides an in-depth analysis of management accounting principles, focusing on their application within Toyota, a multinational automotive manufacturer. The report begins by defining management accounting and its role in providing financial information for internal decision-making, emphasizing its importance in strategic planning, cost control, and performance evaluation. It explores various management accounting systems, including inventory management, cost accounting, job costing, and price optimization, illustrating how these systems support Toyota's operations. The report also details different management accounting reporting methods such as budget reports, job cost reports, and financial planning techniques, highlighting their significance in monitoring performance and improving efficiency. Furthermore, it integrates management accounting into the organizational structure, emphasizing its benefits in informed decision-making. The report includes an income statement prepared using both absorption and marginal costing methods. The report also compares different management accounting methods and their application in the organization, offering insights into financial strategies and business performance analysis.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
LO1..................................................................................................................................................1
Management accounting system and its roles .......................................................................1
Different management accounting systems............................................................................2
Different management accounting reporting methods ..........................................................2
Integration of management accounting in the organisation and its benefits..........................3
LO2..................................................................................................................................................4
Prepare an income statement using both absorption and marginal costing (enclosed in
appendix)................................................................................................................................4
LO3..................................................................................................................................................5
Use of planning tools and management accounting...............................................................5
LO4..................................................................................................................................................7
Comparison of ways of management accounting method in different organisations ...........7
CONCLUSION .............................................................................................................................10
APPENDIX-..................................................................................................................................11
REFERENCES..............................................................................................................................12
APPENDIX....................................................................................................................................14

INTRODUCTION
Management accounting defines as the presentation which analyse the business activities
to the internal management for making effective decision in the organisation. It plays an
important role in making essential data available to company manager who directly responsible
towards the operation of the organisation (Otley, 2016). The main objective of this report is to
introduce the fundamental of management accounting which apply to the wider business
environment and the organisation which operates business activities in that environment. Study
will explain the management accounting and also provides the essential requirement of different
type of the management accounting system. Assignment also define the use of planning tools in
management accounting. Toyota is Japanese multinational auto-mobile manufacture company
headquartered in Toyota city, Japan. It was founded by the Kiichiro Toyoda in 1937.
LO1
Management accounting system and its roles
Management accounting refers to the process of analysing business costs and activities
for preparing the internal financial report and records in attainment of business goals. It is the
system of making sense of financial and costing data and translate that data into important
information for management and employer in the organization. Management accounting plays an
important role in formulating financial strategies through using sales forecast, budget and job-
costing techniques among other managerial accounting tools. Management accountant also can
incorporate data from a company's financial statement to develop strategies that can enhance
gross income and earnings per share of the firm (Quattrone, 2016).
Roles of management accounting
Maintain profitability: Management accounting plays an important role in maintaining
the profitability of the business units through performing the break-even analysis, through this
analysis management accountant weigh sales against fixed and variable costs to determine the
points where Toyota company breaks even. This point helps the management in terms of
determining production levels, sales objective and cost among the other points which impacts the
profitability (Puasa, Smith and Milda Amirul, 2018).
Monitoring expenses: Management accounting also plays a crucial role in maintaining
and monitoring the various expenses of the Toyota company through creating static and flexible
budgets which allow departments head to monitor expenses of the various operations of the firm.
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Formulate financial strategies: It plays a significant role in formulating and creating the
financial strategies through using sales forecast, budget and job costing techniques. Management
accounting formulating the plan to purchase the capital equipment and reduce the operating costs
to ensure the success of the companies’ business operations.
Different management accounting systems
Management accounting focus on preparing information for external parties like
stockholder, public regulators and shareholders. It also takes the companies’ financial
information and designs the report for confidential use by the managers for decision making and
identifying the various ways for a company to run more effectively. It includes various
management accounting system such as inventory management, cost accounting, job costing
system and price optimization system (Chenhall and Moers, 2015).
Inventory management: This system is a discipline primarily about specifying then
shape and placement of stocked goods and products of the Toyota. This system is required for
different location within a company or within many locations of a supply network for improving
the regular and planned course of production and stock of materials. Cost accounting system:
management accounting use this system for creating the internal report. The main objective of
this system is to assist the management of the company for planning and decision making.
Job Costing system: This system of management accounting required in the Toyota
company for allocating the cost of car and other equipment which helps company to identifying
the exact cost of the product for selling the goods to customers.
Price optimization system: This management accounting system refers to the process of
finding and maintaining the price of production against the customer willingness to pay. This
system is required in Toyota company for ensuring that their product will sell quickly at the right
price while still making a decent profit from the market place (Gooneratne and Hoque, 2016).
Different management accounting reporting methods
It includes various types of management accounting reports such as budget reports, job
cost reports and inventory and manufacturing reports.
Budget report: This report plays an important role in analysing the performance of the
Toyota through its managers. As Toyota is big company, manager of the management
accounting analyse the performance of the department and control the costs of the production. In
this report the estimate budget is based on the actual expenses of the previous year. Manager of
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the Toyota can also use the budget report for providing the incentives to the employees
(Gooneratne and Hoque, 2016.).
Job cost report: This type of management accounting report helps the Toyota in terms of
presenting the expenses for a specific project. It also helps in identifying the higher earning area
of the business so the Toyota can focus its efforts there instead of wasting time and money on
jobs with law profit margins. Job cot report can also be use by the Toyota company to analyse
the expenses while the project is in progress, so the manager can correct the areas of waste
before the costs increases.
Inventory and manufacturing: Toyota company can use this type management accounting
reports to make their manufacturing procedure more efficient. Inventory and Manufacturing
report includes the various factors such as wastage and hourly labour cost. Through this report
manager can compare assembly lines within the company to see where to offer the bonuses to
the better performing departments (Gibassier and Schaltegger, 2015).
Integration of management accounting in the organisation and its benefits
Management accounting plays a critical role in the Toyota which helps in supporting,
controlling, planning, organising and decision making of the company. It is the process of
evaluating the information relating to the Toyota so that they can use that information in
effective decision making of the business. Management accounting integrates in each and every
level of the Toyota weather they are related to financial or not and they are also linked to the
internal as well as external environment of the Toyota. It helps in increasing the efficiency of the
functions of the management and fixing the target and prices of the products of the Toyota
(Maas, Schaltegger and Crutzen, 2016.). Management accounting provides the benefit to the
Toyota in terms taking better decision making for the business.
Management accounting present the financial and non financial information on a regular
basis which includes forecast, budgets and In-depth analysis, through this information Toyota
can plan the business activities effectively. It also plays an important role in making effective
decision in the company because it presents the various charts and analysis. It also has an
important benefit as it identify the early signs of the problems, if products is not performing well
the management can identify easily because accounts are presented at regular intervals.
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LO2
Prepare an income statement using both absorption and marginal costing (enclosed in appendix)
Marginal costing: It refers to the cost which is considers as the additional unit of the
output. Marginal costing system used to determine the optimum production quantity for a
company, where it costs the least amount to produce the additional units. If Toyota operates its
business operations with in this sweet spot, then company can effectively maximise its
profitability. This system is also used to evaluate the price of the product when customer request
the lowest possible price for certain orders (Collis and Hussey, 2017).
Absorption costing system: Absorption costing system indicates that all the
manufacturing costs have been assigned to the units produced. This system includes the costs of
various determinants such as direct material, direct labour, fixed manufacturing overhead and
variable manufacturing overhead. Absorption costing method plays an important role in creating
the income tax reporting of the Toyota company (Fierce, 2016).
For example-
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Management accounting techniques
Management accounting techniques help the manager of the Toyota company to monitor
the overall performance of its business activities. It can be prepared frequently throughout the
accounting period according to the need of managers.
Financial planning: The main objective of the Toyota or any other company is to
maximise the profitability of the firm. This can be achieved through making proper financial
planning of the Toyota. This method of making management accounting considered as the best
tool for accomplishing business objective of the Toyota.
Financial statement analysis: Through this method of the management accounting
Toyota can analyse the profit and loss account and balance sheet which can be possible only
through comparative financial statement and ratio analysis.
Cost accounting: Management accounting report can be effectively created through this
method because it presents the cost data in product wise, process wise, department wise and
branch wise. It will compare with predetermine cost data which will enables the management of
Toyota to decide the reasons that are responsible for the difference between these cost.
Budgetary control: This method estimate the future financial needs and arrange them
according to an orderly basis. Management accountant of the Toyota company used budgetary
control system to manage the performance of Toyota (Ahmad, 2015).
Management information system: It defines as the essential method of creating the
management accounting report of the Toyota company because it produces the free flow of
communication with in the business environment of the Toyota. In this management create the
system in which every employee of an organisation can assess the information and used for
taking quality decisions.
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Marginal costing: This method of designing the management accounting reports used in
setting selling prices and best use of raw materials. Marginal costing is based on the fixed cost,
variable cost and contribution. This method produces the information about the product price to
the management accountant for creating the effective management accounting report.
LO3
Use of planning tools and management accounting
Budget is a very important control tool as it could be used to compare actual performance
of the company with each and every segment of the business plan which in turn could be used for
identification of divergences. Hence, this can help the company to take the corrective measures
to fix all the things which has been out of control.
Budgets as a planning tool has various advantages. First and fore most advantage is that it
promotes forward thinking which plays a vital role in identification of short-term problems.
Anticipation of future problem would provide an added advantage to the managers as they could
take their time for solving the problem through crucial examination of the problem and this in
turn would help them to find the best way to overcome them (Wolf and Floyd, 2017).
There are different kinds of planning tools which are used in budgetary control. But the
planning tools that are used by Toyota are as follows:
Forecasting : it is one of the most efficient planning tool because it helps in determining
the things in advance so that things get pre-planned and the company is in a better position to
deal in case of uncertainties which in turn would play a vital role in better management of a
company. Apart from this, it is used for managing all the expenses and resources of a company
efficiently.
Cash budget : this is an another planning tool which is not only used for forecasting
cash-flow but is also used for managing the budget in a most efficient manner towards the
achievement of the business objectives effectively and efficiently (Bryson, Edwards and Van
Slyke, 2018). Apart from this, they even play a very important role towards smooth running of
the business because it brings in transparency as well as accuracy in work.
Advantages of planning tools are as follows:
The most important advantage of planning tool is that it helps in achievement of the
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objectives of Toyota in a very effective and efficient manner. It even helps in anticipation of
future which would in turn help in identifying the strengths and weaknesses of the company so
that the company can take advantage of an opportunity as soon as it is available in market. This
in turn helps the company in smooth running of the business in long run by steady growth and
constant prosperity. Apart from this, it even plays a vital role in minimising the cost by
eliminating false steps and preventing any unwanted deviations. Furthermore, it lays emphasis on
enabling the management for implementing the future programmes in a systematic manner so
that maximum benefits could be derived out of the framed programmes (Ansoff and et.al., 2019).
Hence, there are lot of advantages of planning tool and this in turn creates the need to plan each
and every aspect of the business in advance.
Disadvantages of planning tools are as follows:
the major drawbacks of planning tools are that; they consume lot of time. It is very time
consuming because a proper budget is prepared which takes into consideration procedures,
processes and people. The budget prepared could be ruined in case of constant change in the
environment. Hence, apart from time, cost would also be incurred which may hinder the smooth
running of the business in short as well as long period. But the major loophole of planning tools
are that, they take into consideration only the financial outcomes. Due importance should be
given to non-financial aspects as well in order to achieve the objectives of the business
effectively and efficiently (Argenti, 2018). Hence, efforts should be made to overcome these
disadvantages in order to run the business smoothly in long run.
Analysis and application of different financial tools
Forecasting is a very efficient planning tool for preparing and forecasting things in
advance which would help in dealing with uncertainties in a better manner. Moreover, they even
play a vital role in analysing the financial performance crucially which is very essential for
preparing and forecasting the budget. While on the other hand, cash budget also play an
important role in bringing transparency and accuracy in work which is very essential for
enhancing the image of the company towards the attainment of business objectives as well as for
the purpose of preparing and forecasting the budgets (Constantinescu, 2016).
LO4
Comparison of ways of management accounting method in different organisations
Management accounting methods that could be used by organisations in order to
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respond to financial problems are as follows:
Benchmarking – benchmarking may be defined as a process that is used by business
firms in order to measure their performance against the company that is performing best in that
particular industry for the purpose of improving the performer. The basic reason behind adopting
benchmarking method is to identify the internal opportunities as well as identifying their
strengths to overcome the weaknesses so as to fight the competition and be in a better position.
Thus, this method is very essential to solve the financial problem of a company as the company
can improve its performance by finding out the loopholes and taking measures to correct them.
Thus, by adopting this method of management accounting, company would be able to enhance
its performance by overcoming its financial problems (Duan and et.al., 2016).
For example: Toyota can use process benchmarking method for solving its financial
problems such as need of high investment in machines that are running the processes. This could
be done by comparing its processes with the processes of the best performer of the industry. This
in turn would help the company in improving its processes with regards to development of the
products which may lead to decrease in the complaints of the customers, order fulfilment
processes and billing processes so as to achieve objectives of the company effectively and
efficiently.
While on the other, example of Ford motors can be taken. Ford company can undertake
performance benchmarking method for the purpose of solving the financial problems such as to
overcome the losses by generation of more profits. This method is used for solving the problem
because it would help the company in enhancing the performance by identifying the key
strengths of the rivalry firms that lead to better performance and then inculcating the same
strengths in their performance so as to achieve the business objectives in the efficient manner.
Key performance indicators – Key performance indicators are the factors that helps to
improve the performance of the company. It is a performance management tool that is used for
identifying the extent of success of the business organisations. It is used for the purpose of
identifying whether the company is making process towards the achievement of its strategic
goals (Parmenter, 2015). By adopting key performance indicators, company will be able to solve
its financial problems to a wide extent as the company would be able to identify its drawbacks
and then take initiatives to overcome it.
For example: Toyota could use non- financial key performance indicator for measuring
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the performance of the company and finding the drawbacks in order to take initiatives to
overcome it. The company can use customer satisfaction measure for the purpose of identifying
the progress of the company towards achievement of its objectives. This method would play a
vital role in running the business smoothly in long run. Thus, with the increase in customer
satisfaction, existing customers are retained as well as new customers are attracted and this in
turn contributes in increasing the sales. Hence, it contributes in overcoming the losses of the
company
While on the other hand, ford motors can use financial key performance indicator for
measuring the performance of the company. Financial indicator means determining the financial
position of the company to determine the success of the company. Hence, by adopting this
method; company would be able to enhance its performance in this entirely competitive worls
and this in turn would help the company in settling the debts of the company.
Balance score cards – it can be defined as a performance metric that is used by the
company for the purpose of identifying and improving the functions of the business in order to
achieve the business objectives in a very efficient manner. It plays a vital role in solving the
financial problems of the company by bringing in desired changes in the functions of the
business so that the company is able to earn better profits then before (Hansen and Schaltegger,
2016).
For example: Toyota may use strategic balance score - cards to focus on the strategy of
the organisation and make every possible effort to enhance the efficiency of the strategies
formulated by the company. This method would even help the company in measuring the
progress of the strategy which is very essential for the smooth running of the business in long run
by avoiding high taxes.
While on the other hand, ford motors can adopt operational balanced score-cards for
getting a grip over the overall activities carried out in the organisation and this in turn has would
help a company in enhancing its operations towards the attainment of the objectives of the
company by increased cash flow.
Activity based costing – this method is used for the purpose of identifying and assigning
the cost to the products based on the consumption. This method is very helpful in solving the
financial problem of the company as it would help in efficient management of funds related to
each and every element of the product in a very effective manner (Dale and Plunkett, 2017).
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For example: Toyota could use long period activity based costing as it will help in
efficient management of the volume of products and this is very important for running the
business efficiently in long run through constant procurement of funds. While on the other hand,
ford motors could use short period activity based costing method for bringing efficiency in
running day-to-day operations of the business. This is very important for running the business
smoothly through efficient economic cycles.
Financial governance – financial governance may be defined as all those policies and
procedures adopted by the company for the purpose of improving the financial performance so as
to achieve the business objectives effectively and efficiently as well as to survive and grow in
this highly competitive world.
For example: Toyota should lay strong emphasis on formulation of laws that would
enhance the productivity of employees. Thus, it will help in enhancing in performance by the
company due to increased efforts of employees towards the attainment of business objectives.
While, Ford motors could implement certain rules and regulations and make them mandatory for
all the employees in the company to follow it. Thus, financial governance would play a vital role
in solving the financial problems of the organisations that is eliminating high taxes (Grabel,
2018).
Analysis of management accounting methods leading to sustainable success of the
organisations
Budget helps in resolving financial problems such as overcoming debts, losses, increased
operations on credit and high taxes and this in turn would help a company in achieving the
competitive position in a sustainable way. This is possible, because with the help of budget,
company can forecast the cash flows in an organisation which plays a vital role in gaining the
competitive advantage over the rivalry firms in a very sustainable manner. Thus, this will not
only help in resolving the financial problems of the company but would also play a vital role in
enhancing the image of the company in the mind of public.
CONCLUSION
From the above study, it has been summarised that there are five methods of management
accounting that are used for solving the financial problems of the company. These methods were
explained with the help of examples of two company and by highlighting the differences. These
five methods were balance-score cards, key performance indicators, benchmarking, activity
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based accounting and financial governance. Apart from this, advantages as well as disadvantages
of the planning tools would also be discussed in detail. Advantages of planning tools were that it
would help the company from deviating, would help the company in identifying the strengths
and weaknesses of the rivalry firms in order to gain competitive advantage and it even plays a
vital role in running the business smoothly and systematically in long run. Similarly, like every
coin has two sides, there are advantages attached with disadvantages and these disadvantages are
that financial planning consumes lot of time as well as increases the cost. The major
disadvantages of the company are that it takes into consideration only financial outcomes. Even
there is no guarantee that financial planning may lead to positive outcomes because in this
changing environment planning may even lead to misleading result which may disrupt the
smooth running of the business.
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APPENDIX-
For example-
Direct material £4000
Direct labour £2000
variable production £2000
__
Unit cost £8000
Particular January February
Opening FG 0 1000 units * £8000= £80,00,000
+Production 2500 units * £8000 =
2,00,00,000
1900 units * £8000 = £17,200,000
- Closing 1000 units * £8000= £800,00,00 400 units * £8000= £3200,000
Income statement of Toyota (marginal costing method)
Particular January January February February
Sales - 75000000 - 125000000
VP cost of the sales
Opening FG 0 8000000
Production 20000000 17200000
Closing FG -8000000 12000000 3200000 22000000
Differences 63000000 103000000
- other VC -37500000 -62500000
Contribution 62625000 102375000
-Fixed cost -5000000 -5000000
Profits 57625000 97375000
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Absorption costing system: Absorption costing system indicates that all the
manufacturing costs have been assigned to the units produced. This system includes the costs of
various determinants such as direct material, direct labour, fixed manufacturing overhead and
variable manufacturing overhead. Absorption costing method plays an important role in creating
the income tax reporting of the Toyota company (Fierce, 2016).
For example-
Heading January February
Sales 75000000 125000000
Fixed cost 5000000 5000000
Variable cost 37500000 62500000
Gross profit 32500000 57500000
Indirect expenses 100000 200000
Net profit 32400000 57300000
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