Comprehensive Financial and Management Accounting Report: Toyota

This report provides a detailed analysis of Toyota Motor Corporation's financial and management accounting practices, focusing on its environmental and social impacts. It begins with an introduction to Toyota's operations, followed by a discussion of the positive and negative consequences of its manufacturing activities. The report then examines Toyota's compliance with GRI disclosures, comparing the quality and depth of its environmental performance to that of BMW. It explores the benefits of GRI compliance for Toyota's stakeholders and analyzes the cost structures associated with a new 'Smart' vehicle production line, including fixed and variable costs. A break-even analysis is also discussed. The report concludes with an overview of Toyota's environmental and social performance, highlighting its achievements and alignment with GRI standards. Part B presents a cost analysis for the Smart Vehicle and Part C is missing.

RUNNING HEAD: FINANCIAL AND MANAGEMENT ACCOUNTING
Financial accounting

Financial and management accounting 2
Executive summary
The report focuses on the environmental and social factors of Toyota Corporation. It provides a
brief introduction about the company and later on discusses the positive and negative impacts of
the company’s operations on society and environment. In the later part, it explains about the GRI
disclosures of the company and compares the quality and depth of its environmental performance
with BMW. The report also explains the reasons for the fact that the shareholders of Toyota will
not be benefitted with the GRI compliance of other motor companies. It will increase the
competition and influence them to a great extent. At the last, a conclusion has been provided
summarising all the findings of the report.

Financial and management accounting 3
Contents
Part A..........................................................................................................................................................4
Introduction.................................................................................................................................................4
Environmental and social impacts of Toyota’s operations...........................................................................4
Positive impacts.......................................................................................................................................5
Negative impacts.....................................................................................................................................6
Four key GRI disclosures............................................................................................................................6
Comparison of quality and depth.................................................................................................................8
Benefits to the shareholders from the compliance of GRI Reporting standards.........................................10
Conclusion.................................................................................................................................................11
Part B.........................................................................................................................................................11
Part C.........................................................................................................................................................15
References.................................................................................................................................................20

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Part A
Introduction
Toyota Motor Corporation is a Japan based multinational automotive company engaged in the
manufacturing of motor cars and vehicles. It was incorporated on 27 August 1937 having its
headquarters situated in Toyota, Aichi. Apart from automotive sector, the company also operates
in finance and other industries. It segments include automotive, financial services and others.
The company covers the market of North America, Japan, Asia and Europe in automobile sector.
It produces its automobile and other related parts through 50 overseas manufacturing companies
and in over 30 countries apart from Japan. As of 2017, the company has 364,445 employees and
was considered as the fifth largest company in terms of revenue. It has also been ranked second
in the list of largest automotive manufacturer. It is the largest listed company in Japan as per its
market capitalization and revenue. Toyota is also listed on London Stock Exchange and New
York Stock Exchange (Reuters. 2018).
This report focuses on the overall evaluation of company’s activities from environmental and
legal aspects. It covers the positive and negative impact of its operations along with the benefits
of GRI disclosures. It also compares the quality and depth of the environmental performance of
Toyota and BMW.
Environmental and social impacts of Toyota’s operations
Being the leading company in automotive sector, the company has a great responsibility towards
the society and environment. The manufacturing of automobiles affects the environment and
society to a great extent. The objective of Toyota is to carry out its activities by keeping two

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things in mind which are customers and concern for the environment. However, despite working
with such objective, the manufacturing operations do left a positive and negative impact on the
society and the surroundings. All such impacts are been disclosed in the sustainability report of
the company and also the compliance with GRI disclosures act as the pioneers of environment
and assist in having better understanding about the social and environmental impact of business
activities.
Positive impacts
The following section explains in detail about the positive effects of Toyota’s manufacturing
activities on both the society and the concerned environment. They are as follows:
 It has taken suitable measures and initiatives for the purpose of ownership and protection
of forest. The activities include ToyotoShirakawa-Go-Eco-Institute, Toyota
Environmental Activities Grant Program, Toyota Mie Miyagawa Forest Project and
Toyomori. Along with this, it has also conducted a Smart Eco Drive in countries like
Korea (Crane & Matten, 2016).
 Showing the concern towards society, the company is involved in promoting the
development of human management and enhancing the living standards of the people. in
lieu of keeping a clean environment, it is addressing the safety of traffic by integrating
cars, traffic and people in order to avoid the traffic casualties as a whole.
 Toyota also supports various programs related to dance and music in order to promote
local culture in the society and enhance the youth to be familiar with the society and
culture. The company is also involved in developing and expanding the social welfare
programs (Epstein, 2018).

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 As per its sustainability report, there are 83 distributers and 4233 dealers across 80
countries who participated in the Dealer Environmental Risk Audit, conducted on global
level.
Negative impacts
Despite taking such positive measures, there are some operations also which have impacted the
society and environment negatively. They are as follows:
 The manufacturing of motor vehicles involves the huge dependence and consumption of
fossil fuels that affect the environment severely. Such strong use of fuels leads to several
environmental problems among which the most common is pollution. Increasing content
of pollution in the air will eventually affect society to a great extent. It may cause
breathing problems, global warming and increase the demand of petrol and diesel.
Upsurge in prices of gasoline will surely impact the economy and result in environmental
problems (Globalreporting. 2016).
 Increase in number of cars on land will results in congestions and hindered mobility.
Moreover, disposal of the same will increase the fleet and become more costly as
compare to landfill.
So, above discussed are some positive and negative effects of the operations and business
activities carried out by Toyota within its organizations.
Four key GRI disclosures
Global Reporting Initiative is an independent standards organization operating on international
level. It helps the government, organizations and businesses to understand the impacts of their
activities on climate change, human rights and corruption. GRI 102: General Disclosures deal

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with the reporting of information containing profile of the company, strategies, ethics and
integrity, practises of stakeholder engagement and procedure of reporting.
The four key disclosures of GRI that are relevant to the shareholders or stakeholders of Toyota
are as follows:
 Energy
Introducing the energy efficient products in the market will help the customers to select their
choice of cars and the one that best suits to their needs and preferences. Toyota uses fuels and
automotive powertrain diversification processes that results in attracting a lot of shareholders and
also enhance the economy of dominant market. Inclusion of products like hybrid vehicles and
full cycle vehicles allow the stakeholders to cover a huge market share (Haider & Kokubu,
2015).
 Customer Health and Safety
Toyota also discloses that their human support functions helps in understanding the objectives
and promotes the safety of its customers and enhance their health management. Its products
provide health support and in a way encourage the stakeholders to take the advantage of same.
 Effluents, emissions and waste
Toyota is focused on commencing its business by keeping in mind the various environment-
related polices. It clearly indicates that the company has properly followed all the GRI
Disclosures and has aligned to its reporting standards. The Disclosure 102-16 provides the details
about the standards, norms, principles and values. Toyota’s development of Zero emission

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vehicles and fast energy filling stations will eventually be more relevant to the shareholders
(Isaksson & Mitra, 2018)
 Products and Services
There is a wide range of products offered by Toyota including manufacturing of automotives,
engines, electric and no-electric cars and others. Material handling equipments and textile
machinery are also offered by the company. All the product related information is available on
the website of Toyota which is very much useful for its shareholders in order to understand its
business activities.
Comparison of quality and depth
The below table shows the environmental practices done by BMW and Toyota and compares the
quality and depth of each.
Particulars Toyota Corporations BMW Group
Carbon Disclosure Project A GRADE A GRADE
Promote Sustainable
Societies
AA GRADE AA GRADE
Sustainable Value Nature Positive Closet to Positive
Best Environmental Car 2018 According to the reports of
Automotive Science Group
Toyota’s Prius Prime is the
best car of 2018 in terms of
environmental concerns.
BMW stands art second
position.

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CO2 Emissions The efficiency of Toyota
Prius increased to 56 MPG
and CO2-e emissions per
mile raised to 226 grams.
BMW reduces the CO2
emissions by 141 grams per
kilometre with its new
vehicle. Furthermore, the
company is providing
electricity free of CO2
(Globalreporting. 2016).
Initiatives  Steps taken in respect of
rainforest restoration.
 Campaigning done for
Toyota Traffic Safety.
 Electronic Car
 Cell Vehicles
 Conducted programs
related to HIV and aids at
the workplace.
 Created fast energy
stations.
 Inzell Initiative
Strategy  Adopted KAIZEN costing
system in its organization.
 THUMS Model
development.
 Eco Electrification
 Make use of renewable
energy resources
 Create a healthy working
environment for the
workers.
 Increasing diversity.

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Achievements  Addition of Pollinator
gardens.
 Recycling of 92% of the
waste generated.
 Revealing Project Portal
got installed.
 Rewarded as the Fleet
Manufacturer of the year
 CO2 emission falls
constantly.
 Recycling the models in
order to promote waste
management.
(Greenbiz. 2016).
Benefits to the shareholders from the compliance of GRI Reporting standards
The GRI disclosures in a way provide full information about the company’s activities and
operations. Therefore, the presentation of same will benefit the shareholders as they will be
aware about all the relevant data and corporate practices of the company that have a significant
impact on society and environment. The G4 standards lay more emphasis on information related
to sustainability issues and the data important and relevant to the shareholders. The widespread
compliance with such standards by other motor corporations may create a sense of responsibility
but it will not be beneficial for the shareholders and potential investors of Toyota. The
disclosures provide a sort of assurance and the stakeholders such as customers, investors and
other prefer those companies that have properly disclosed all the information (Toyota global,
2017).
If other companies like BMW, Mercedes are complying with the GRI standards, then the
stakeholders of Toyota will be highly influenced. Moreover, reporting all the information will
attract the customers and give a sense of surety to them. This will result in high competition

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between Toyota and other corporations and will affect its stakeholders to a great extent
(Maginnis, Hapuwatte & Jawahir, 2017).
Conclusion
The above report concludes that the performance of Toyota was quite impressive from the
perspective of environment and society. The company is focused on creating positive impacts on
the surrounding s by adopting various initiatives. Moreover, it has made several achievements as
compare to BMW and has properly aligned with the GRI Standards.
Part B
The new production line ‘Smart’ vehicle of Toyota involved the manufacturing of automated
products or cars which involve some fixed and variable cost that are associated with its
production. The major cost incurred in the production process involves the following:
Cost Amount
Raw Materials such as steel, aluminium and
petroleum products
$250,000
Labour overhead $120,000
Accessories and Spare parts $90,000
Gasoline $75,000
Engine $85,000
Other variable cost $25,000
Fixed cost $300,000

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The cost incurred in the production and shown in the above table can be easily classified on the
basis of their cost behaviour. Fixed costs are generally the ones which do not change or fluctuate
according to the changes in company’s level of production. They remain same at all the levels
and in the production of automated smart vehicle; Toyota has incurred the cost of $300,000 as its
fixed cost.
Variable costs are the ones which change according to the level of production. In the above table
the cost which can be identified as variable are the raw materials such as aluminium, steel
products, labour required and the spare parts and other accessories needed for the production.
Products like Engine and Gasoline are treated as fixed cost (Lucey & Lucey, 2004).
Break even analysis is the concept which is very important for the companies to apply in their
business as it determines the targeted units required to be manufactured where the company earn
not profit and no loss. The manufacturing of the new product require some sort of fixed and
variable costs that are huge in amount. Therefore, it is very much necessary for the companies to
conduct a break even analysis in order to set their selling price and cater to the needs of
customers. BEP will let Toyota know about the targeted units of production and the company can
figure out how much cost is to be incurred on what number of units. It can easily set its revenue
targets in order to book high profits (Ahmed, 2015).
The balanced scorecard attached below explains lead and lag measures along with an objective
for the each perspective in relation to the new production line.
Balanced Score Card: Manufacturing of the Smart Car
Financial
Objectives Measures Initiatives

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The only objective is
to increase the sales
and earn more profit
on the production of
new products.
Lead: Analysis
of sales with help
of key ratios.
Lag: creation of
a growth metrics
Conduct an overall analysis of the
product and identify the areas which
resulted in the low revenue and
profits of a concerned product.
Customer
Objective Measures Initiatives
Increase the brand
image and provide
satisfactory services.
Lead: customer
surveys related
to brand image.
Lag: checking
out the other
automotive
industries with
high customers.
Metrics should be created which
reflect the responds of customers in
respect of the brand image and level
of satisfaction they achieve by using
the product.
Internal Business Process
Objective Measures Initiatives

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Improve the
manufacturing as well
as the internal process
of the company.
Lead: supervise
the internal
control system.
Lag: Keep a
check on
management’s
activities.
Daily supervisions of the operations
and elimination of non-value added
activities will result in improved
internal process of the company.
Learning and Growth
Objective Measures Initiatives
Using Six sigma
practices and taking
regular feedback from
the employees and
managers.
Lead: Creating
metrics to
measure the
percentage of
skilled
employees.
Lag:
Performance of
the organization.
Set the key performance indicators
and review their activities on a
periodic basis.
The features of above scorecard are as follows:
 It considers both the financial and non financial measures.
 It evaluated the organization’s real performance on the basis of the lead and lag measures
identified.

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 It eventually helps the Toyota to make correct and appropriate decisions.
The reason for choosing such measures is to meet the objective of each perspective and increase
the productivity of the new ‘smart’ vehicle by considering all the factors such as internal process
performance and growth and learning perspective of employees and managers.
Part C
The three hypothetical products chosen by Toyota are Blue Tooth Head Set, Demisting mirrors
and Self Cleaning Mats. However according to the given scenario all the products resulted in an
after tax loss due to high fixed cost and expenses. The BEP units and after tax profit figure
calculated for all the three products are as follows:
Composite BEP
Fixed cost 445,000.00
Weighted Average CM per
Unit 33.48
BEP units 13,293
Sales mix 40% 28% 31%
Break even units 13,293 13,293 13,293
Product units at BEP 5,377 3,734 4,182
Calculation of after tax
profit
Blue Tooth Head Set
Demisting
mirrors
Self Cleaning
Mats
Expected units 2057 2660 2414
Sales
$
180,000.00
$
125,000.00
$
140,000.00
Less:
Labor cost
$
32,914.29
$
31,914.89
$
24,137.93

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Material cost
$
57,600.00
$
41,223.40
$
31,379.31
Variable overhead
$
1,440.00
$
1,595.74
$
1,206.90
Fixed cost
$
128,381.91
$
165,978.39
$
150,639.70
Total cost
$
220,336.20
$
240,712.43
$
207,363.84
Net profit/Loss
-$
40,336.20
-$
115,712.43
-$
67,363.84
Tax rate 30% 30% 30%
NPAT
-$
28,235.34
-$
80,998.70
-$
47,154.68
The above tables shows that as per the given information the BEP units required for each product
are 5377 units, 3734 units and 4182 units respectively. According to the expected units all the
products have reported a loss after considering the fixed and variable costs. However, in order to
improve the same some initiatives can be taken which are explained below.
Memorandum
To: Sales Team
From: Financial Analyst
Date: 12 September 2018
Subject: Enhancing annual profits and production units
According to the calculation done, it has been observed that the number of units produced for
each product is less than its BEP units which ultimately resulted in loss figures for all of them.
The first initiative which can be taken by the company is to increase its production units and
manufacture above the break-even point. This will ultimately enhance the sales of each product
which can be used to cover high fixed costs and variable overheads. Furthermore, the company

Financial and management accounting 17
can raise the prices which will impact its BEP units and contribution margin. If the selling price
increases the contribution will rise and it will automatically reduce the break even units. Once
the targeted units reduced the company can produce less and sell the same at higher prices in
order to book profits. Along with the low production, the variable cost associated with it will also
decline, creating on a whole a profit making situation (Otley, 2016).
Another initiative which can be taken is to reduce the fixed cost of the organization. As per the
current scenario, most of it comprises of marketing cost and depreciation on equipment. Toyota
should spend less on the marketing of its products for the purpose of reporting profits on the
same.
Following are the results of initiatives discussed above:
Initiative 1
Increasing expected
units
Blue Tooth Head Set
Demisting
mirrors
Self Cleaning
Mats
Expected units 6000 4000 4500
Sales
$
525,000.00 $ 188,000.00
$
261,000.00
Less:
Labor cost
$
96,000.00 $ 48,000.00
$
45,000.00
Material cost
$
168,000.00 $ 62,000.00
$
58,500.00
Variable overhead
$
4,200.00 $ 2,400.00
$
2,250.00
Fixed cost
$
184,137.93 $ 122,758.62
$
138,103.45
Total cost
$
452,337.93 $ 235,158.62
$
243,853.45
Net profit/Loss
$
72,662.07 -$ 47,158.62
$
17,146.55
Tax rate 30% 30% 30%

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NPAT
$
50,863.45 -$ 33,011.03
$
12,002.59
Initiative 2
Raising the selling
prices
Blue Tooth Head Set
Demisting
mirrors
Self Cleaning
Mats
Expected units 2057 2660 2414
Selling price 100 95 90
Sales
$
205,714.29 $ 252,659.57
$
217,241.38
Less:
Labor cost
$
32,914.29 $ 31,914.89
$
24,137.93
Material cost
$
57,600.00 $ 41,223.40
$
31,379.31
Variable overhead
$
1,440.00 $ 1,595.74
$
1,206.90
Fixed cost
$
128,381.91 $ 165,978.39
$
150,639.70
Total cost
$
220,336.20 $ 240,712.43
$
207,363.84
Net profit/Loss
-$
14,621.91 $ 11,947.14
$
9,877.54
Tax rate 30% 30% 30%
NPAT
-$
10,235.34 $ 8,363.00
$
6,914.28
If the company follows above initiatives it can earn after tax profit for its products. However,
such measures impact the selling price, sales mix and production units of the products decided.
The proposed initiatives will also affect the break-even point of the company as follows:
Blue Tooth Head
Set Demisting mirrors
Self Cleaning
Mats
Selling price 100 95 90
Materials 28.00 15.5 13.00
Labor 16.00 12.00 10.00
Overhead 0.70 0.60 0.50

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Total variable cost 44.70 28.10 23.50
Contribution 55.30 66.90 66.50
Sales mix 40% 28% 31%
$ 22.37 $ 18.79
$
20.92
Weighted Average CM per Unit 62.08
Composite BEP
Fixed cost 445,000.00
Weighted Average CM per
Unit 62.08
BEP units 7,168
Sales mix 40% 28% 31%
Break even units 7,168 7,168 7,168
Product units at BEP 2,899 2,013 2,255
It can be seen that as the selling price increases the BEP units for each product reduced to a great
extent which will ultimately enhance the profitability position of the company. So, Toyota sales
team can take such initiatives.

Financial and management accounting 20
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TECHNIQUES FOR THE SUCCESSFUL RETAIL OPERATIONS-A THEORETICAL
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sustainability in the age of globalization. Oxford University Press.
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standards.aspx.
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Sustainable Development, 14(3), 207-230.

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