Table of content...........................................................................................................................2Introduction..................................................................................................................................3Chapter one1.1 Importance of costs in the pricing strategy for Toyota..........................................41.2 Designing costing system in minimizing the cost for Toyota...............................51.3 Propose improvements to the costing and pricing systems used by Toyota Corporation (plc)........................................................................................................................6Chapter two2.1 Applying forecasting techniques to make cost and revenue decisions in an organisation..................................................................................................................................82.2 Assess the source of funds available to Toyota Motors Corporation (plc) for specific project............................................................................................................................9Chapter three3.1 How a budget can be used to set targets and measure the performance of Toyota...........................................................................................................................................103.2 Participate in the creation of a master budget for an organisation.................113.3 Compare actual expenditure and income to the master budget for Toyota.143.4 Evaluate budgetary monitoring process of an organisation..............................16Chapter four4.1 Recommendation of the process of management cost reduction in Toyota Motor Corporation...................................................................................................................184.2 Evaluate the potential for the use of activity based costing...............................19Conclusion..................................................................................................................................21References..................................................................................................................................22

IntroductionThis report is mainly focuses on the managing financial principle and techniques in Toyota Motor Company. The major issues like decision-making process, forecasting techniques, budgetary process, cost reduction and management processes, are all discuss in the report to give Toyota motor company competitive advantage among their rivals in the Automobile market globally. Toyota Motor Corporation is a Japan-based organisation but has branches all over the world, and was found in 1937 by Sakichi Toyota; mainly the organisation engaged in the auto industry and also is a business financial company that operates through three business market segments. The automotive sector is engaged in the design, manufacturing and sale of car productions including passenger cars, vans, and trucks, as well as related parts and accessories. Another sector is financial, in the provision of financial services related to the sale of the organisations products, as well as rental vehicles and equipment. Finally others participate in the design, manufacture and sales of residential projects as well as information and communication business. (Toyota, 2013).

Chapter one1.1 Importance of costs in the pricing strategy for Toyota Cost can be seen as the total money, time and resource associated with a purchase or even the activity. Cost can also see as the vital key to pricing strategy in Toyota. Cost is the most important part of pricing in Toyota because it can quite often or even always decide the profit margin which always add up to form the price of Toyotas product. But sometimes the term Cost cutting, when it comes to large organisations like Toyota, Honda etc, to increases the profit margin but when costs significant goes up they do effect the price of the product or services but usually manufacturers would like to keep the price constant when there are minor adjustments in cost. Another importance of costs pricing strategy for Toyota is that; it will help the organisation (Toyota PLC) to set the right price for marketing of its product or services. Setting a price too high or too low for their target market can lead to lower sales and loss of profit. The exact strategy used depends on the Toyotas marketing and profit objectives. Costs pricing strategy is very important for any organisation when the production costs of a product, or the costs of providing a service, are not clear in advance. (Chron, 2013)

1.2 Designing costing system in minimizing the cost for Toyota.Before proceeding, lets really understand the core meaning of the words Costing System; costing system are broader components of accounting system used by an organisation. Their key reason in existence is to keep a focused eye on expenditures made by the organisation. While the organisational data is collected and generated is also integrated into the overall accounting system, the costing approach allows for the data to be easily extracted for reports to upper management. Information gathered by a costing system allows CEO and Managers to quickly identify the current status of three key factors that are relevant to the success of company; performance cost, operational costs and Activity base coasting system. (Wise GEEK, 2013).Activity base coasting System is normally used within an organisation and is popularly known as ABC. The first reason why this costing system exists is to help organisations understand the true profitability of dealing with individual customers or selling specific products and service. However the real benefit for Toyota to adopt and be using this technique or this costing system; is that it will enable the organisation to identify quickly the cost of any process or product, course of action or function, and can, if appropriate take ninety percent of the organisations overheads and drive them down to these levels. Because everything is reconciled back to the general ledger it fully answers the question, what is the true cost of the productImportantly ABC is also about customers; whether in calculating profitability or in working out the true cost of service delivery, and once staff realise this they are very fast to come and appreciate the activities they undertake actually.ABC are also for the customers benefit . Three categories are recommended to illustrate this point;Value adding: An activity that is necessary to complete the process and which helps the customers requirements to be met.Non Value Adding: An activity that is not necessary to complete the process and which does not truly satisfy the requirements of the organisation.Sustaining Non-Value adding: An activity that does not meet the customers requirements but does satisfy some requirement of the organisation, whether or not it is necessary to complete the process. (Value Adding, 2013).

1.3 Propose improvements to the costing and pricing systems used by Toyota Corporation (PLC)Toyota is a world renounce organisation; they are really improving in every parts of this earth. In other to make much improvement or continue their improvement in costing and pricing system they need to follow the strategy bellow;The importance of costing to good financial management: Toyota needs to have that ability to identify, interpret, measure and present cost as they relate to an organisations economic flow of goods and services, both historically and in a forward-looking context, is necessary for an informed understanding of the organisational drivers of profit and value.Fitness for purpose: Toyota should always make sure that the cost and pricing system are prepared in a manner appropriate to the specific context and purpose of its use, there are three principal applications: External reporting- historical and descriptive Performance evaluation and analysis-interpretative and diagnostic Planning and decision support analytical and predictiveMateriality/ cost effectiveness: the design, implementation, and continuous improvement of costing and pricing system, data collection, and methods should reflect a balance between the required level of accuracy and the cost of measurement based on the competitive situation of the organisation.Comparability over time and consistency: Toyota needs to be ensure that Cost information should be collected and analyzed in a systematic way and in such a way as to ensure comparability over time, whether in a routine information system, or for a specific application and purpose. (IFAC, 2009).Most organisations have recognized the bottom-line impact to be gained through effective pricing, over the past two decades. And yet awareness by itself is not enough. In other to gain the full promise of pricing requires an infrastructure to drive real and sustained pricing performance. With such a foundation, an organisation like Toyota can establish and strengthen pricing activities by creating deliberate decision processes, a specialized pricing organisation, mechanisms that appropriately measure and rewarding pricing excellence, and robust support tools and systems.A pricing infrastructure can be difficult and costly to create. Because it requires investing appropriately, empowering the right people, articulating clear targets and objectives, and managing risk. Yet the benefits of realizing true pricing excellence are worthwhile, a 1% point improvement in average price of goods and services leads to an 8.7% increase in operating profits for the typical Global 1200 organisation. Since a well-executed pricing-improvement program often yields price increases of two to four percentage points or more, sustaining a long-term price advantage may represent roughly 15 to 25 percent of typical organisations total profits. (McKinseyQuarterly, 2013)

Chapter two2.1 Applying forecasting techniques to make cost and revenue decisions in an organisationPlanning for the future is the essence of any organisation. Organisations need estimates of future values of business variables. Every organisation or commodities industry needs forecasts of supply, sales and demand for production planning, sales, marketing and financial decisions. In organisation forecast of monetary variables need to be applied by costs or price, for instant. Financial institutions face the need to apply forecasting technique in their decision of volatility in stock prices. Forecasting technique is the technique used to determine the future revenue streams, there are macro economic factors that have to be predicted for policy-making decisions in governments. The list is endless and forecasting technique is a key decision-making practice in most organisations. Managers should always keep themselves abreast of forecasting technique methods, whether they already have a forecasting package, have built models themselves or plan to invest in one. (The decision makers, 2013).

2.2 Assess the source of funds available to Toyota Motor Corporation (plc) for specific project.Despite all the differences among Toyota as an organisation, there are only few sources of funds available for Toyota as an organisation. Toyota makes profit by selling a product for more than it costs to produce. This is most basic source of funds for Toyota and is the key source of their fund currently. Toyota generates most of its money by selling parts of itself in the form of shares to investors, which is known as equity funding. The benefit of this is that investors do not require interest payments like bondholders do. The drawback is that further profits are divided among all shareholders.Finally in an ideal world, Toyota would bring in all of its cash simply by selling goods and services for a profit. But, as the old saying goes, you have to spend money to make money. And is just about Toyota has to raise funds at some point for a specific project and expand into new markets. Generally when evaluating organisations, it is vital to look at the balance of the major sources of funding. For instant, too much debt can get an organisation into trouble. On the other hand, an organisation might be missing growth prospects if it doesnt use money that it can borrow. (Toyota, 2013)

Chapter three3.1 How a budget can be used to set targets and measure the performance of Toyota. link to strategy Design procedures Incentives Link to cost Reduce cycle timeLink budget development to corporate strategy: Budget expresses how resources will be allocated and what measures will be used to evaluate progress, Budget development is more effective when linked to overall corporate strategy. Linking the two gives all managers and employees a clearer understanding of strategic objectives. This understanding, in turn, leads to greater support for objectives, better coordination of tactics, and ultimately to stronger organisation wide performance.Design procedures that allocate resource strategically: Within any Organisation for example Toyota, competition for resources is inevitable. Every function and business unit needs funding for both capital and operating expenses- usually in excess of the actual resources available. This makes it critically important for organisations to design procedures so that resources are allocated to support key strategies.Tie incentives to performance measures other than meeting budget targets: At best practice organisation, meeting budget targets is secondary to other performance measures. Such organisations use a balanced set of performance measures to chart progress toward strategic objectives, and use the same measures in their incentive programs. This reinforces the importance of key strategies and communicates what result will be rewarded. Link cost management efforts to budgeting: By linking cost management efforts to budgeting, organisations improve the quality of information available for managers to use in developing their budgets. Accurate cost information is fundamental to budgeting. Organisations that use accurate cost management techniques and provide budget developers with ready access to cost information improve both accuracy and the speed of their budget process.Reduce budget complexity and cycle time: best practice organisations strive to reduce budget complexity and streamline budgeting procedures. Such streamlining allows management to collect budget information, make allocation decisions, and communicate final targets in less time, at lower cost, and with less disruption to the organisations core activities. (Inc, 2013)

3.2 participate in the creation of a master budget for an organisationBefore going into the participatory for the creation of the master budget, is also good to know what master budget is all about; Master budget is very important financial data that provide a quantitative and also visual assessment of how to achieve future objectives of an organisation. Implemented effectively, the budgets enlist managers and those impacted to participate in the budgeting process. (Opulento Incorporated, 2013)The master budget of the Organisation comprises the following budgets: Budgeted income statement Budgeted cash flow Budgeted balance sheetBudgeted income statementThe company prepares its budgeted income statement as follows. Toyota manufacturing company budget for the financial year 2012

201020112012VariancePercentage

ActualActualBudgeted

Revenue14,3751582018193237315

Cost of sales8734952010758123813

Gross profit564163007435113518

Selling and distribution expenses13251458160314610

Administrative expenses537550565153

Other administrative expenses268275270(5)(2)

Profit before tax35114017499798024

Taxation 25%8781004124924524

Profit after tax263330133748122541

Budgeted cash flowThe budgeted cash flow statement of the organisation for the financial year 2012 is as follows: Toyota manufacturing company budget for the financial year 2012

201020112012

ActualActualForecasted

Cash balance at the beginning625450796

Add Receipts

Collection from customers10,75014,75017,350

Total cash available11,37515,20018,146

Less: Expensenses

Direct material 3,3453,7554,506

Direct labour2,3002,5303,036

Manufacturing overhead2,8933,4344,121

Selling and distribution expenses1,3001,4301,716

Administrative expenses537555570

Purchase of property plant and Equipments2,0005001,500

Tax 8001,1001,250

Total disbursements13,17513,30416,699

Excess or deficiency over disbursements (1,800)

Financing

Borrowings2,5002,000

Payments1,000500

Interest250100200

Total financing2,250(1,100)1,300

Cash balance at the end450796147

It is assumed that the customer collection will be taken place in the same manner which took place in the past two year of 2010 and 2011.Furthermore a capital expenditure of 1500 is expected in the year of 2012 to ensure that the manufacturing facilities are operates in most effective and efficient manner using cutting edge technology that the industry has.All the other manufacturing related expenses such as direct material, direct labour and production overheads are assumed to pay when they occur.Operating expenses such as selling and distribution expenses, administrative expenses also paid when they incurred.Accordingly borrowing of 2000 is expected to bridge the gap between the available cash balance and required cash balance.Budgeted balance sheetThe companys Budgeted balance sheet is drawn as follows:201020112012

ActualActualBudgeted

Non current assets

Property plant and equipments103501050012,500

Current assets

Trade receivables 230018932,789

Inventory7508472,194

Cash and bank balance450796147

350035365133.2

Total assets138501403617630

Share capital650065006,500

Reserves100040137,761

Borrowings250015002,500

Current liabilities

Trade payable3502023869

Total equity and liability1035014036.0817630

The budgeted income statement, budgeted cash flow statement and budgeted balance sheet for the financial year 2012 has prepared in a consistent basis.

3.3 Compare actual expenditure and income to the master budget for Toyota.2010201120122012variance

Revenue14,37515,82018,19318,668475

Cost of sales8,7349,52010,75811,043286

Gross profit5,6416,3007,4357,624189

Selling and distribution expenses1,3251,4581,6031,64744

Administrative expenses 53755056559025

Other expenses26827527029020

Profit before tax3,5114,0174,9975,097100

Tax at 25%(878)(1,004)(1,249)(1,274)(25)

Net profit after tax2,6333,0133,7483,82375

Revenue: The actual revenue of the organisation for 2012 was 18,668 while the budgeted amount was 18,193 which is an increase of 475 than budgeted. This has resulted in the significant increase in the volume, due to the higher demand prevailed for certain product categories backed by the weather condition. Cost of sales: cost of sale has increased by 286 than those budgeted due to the increase in the demand for certain product which is evidenced by the increase in revenue. However gross profit of the company remains in the same position of 41% as budgeted. Though the organisation expected to increase the cost of sales to be increased by 13% actual increase accounted to 16% due to the certain lapses faced by the manufacturing facilities.Furthermore some certain direct manufacturing expenses such as electricity and overhead cost also increased along with the increase in revenue. Gross profit margin: Gross profit also increased by 189 than budgeted for the financial year 2012. However the gross profit margin shows flat at 41% with the budgeted while it has improved by 1% from previous year of 40%.Selling and Distribution expenses: selling and distribution expense was amounted to 1647 while the budgeted expense was stood at 1603 which shows an increase of 44 than budgeted. This is mainly due to the increase in sales volume and this has resulted in slightly increase in distribution expenses of the organisation. Moreover sales commission expense has also increased due to the increase in the revenue. Administrative expenses: Administrative expenses were budgeted at 565 where as actual amount was stood at 590. Accordingly administrative expense has increased by 25% than budgeted. This was due to the increase in the salary expenses that resulted to the increment, and also there were new recruitments that just took place in the organisation. Other operating expenses: other operating expenses also increased slightly by 20% compared with actual other operating expense.Profit before tax: The profit before tax has increased 100 than budgeted amount due to the increase in the sales volume. However the company was unable to obtain the full benefit from such increase due to the increase in the cost of sales and several other operational expenses. (Bloomberg Business week, 2013)

3.4 Evaluate budgetary monitoring process of an organisation.Budget monitoring process is a process whereby the organisation sets the budgets to their organisations and continuous monitoring of the performance of the organisation compared with the budget to evaluate whether the operation is taken place in an effective and efficient manner. The objective of the budgetary control system is as follows: Determining the goals and objectives of each department of the organisation Assigning roles and responsibilities to each and every employee so that such individual is aware what he is expected to contribute to the organisation. Providing a basis for which performance of the company can be compared and identify any deviations take necessary actions on that on timely manner. Ensuring that all available resources are used in efficient and effective manner. Providing basis for revision of current policies to face the future.The following advantages can be obtained through a budgetary monitoring and control system: Budgetary control system helps the management of the organisation to carry out its operational activities in an effective manner. Budgetary control is a efficient tool to control the companys expenses. Budgetary control can be used as a yardstick or measurement base to evaluate the performance of the individual staff of the organisation. Budgetary control system helps to identify the deviations from the actual output and expected output and to identify the possible reasons for deviations. Budgetary control system helps to increase efficient and effective utilisation of resources in the organisation such as production materials, skilled labours, production machinery etc. Budgetary control system helps the organisation to identify the current trends and to formulate future policies based on such information to operate effectively. Budgetary control helps the organisation to implement standard costing system to the organisation in an efficient and effective manner. By implementing a budgetary control system it encourage employees of the organisation to concentrate on the cost when performing activities within the organisation to concentrate on the cost when performing activities within the organisation.Budgetary control system has following limitation/ disadvantages Budgets are based on estimates of the future activities and therefore such estimates can be wrong and budgets may not be able to achieve giving a wrong picture. Budgetary controls may affect to the quality of the product and services of the organisation due to the high concentrate on the expenses of the production activities. Budgetary control can gives a wrong impression that achieving budgets of the organisations will solve all the problems faced by the company. Implementation of a budgetary control system may be high cost and in some instances it may not be cost effective. The management may focus on the achieving budget targets rather than achieving the goals and objectives of the organisation. Management may do under budgeting to show that the performance of the company is improved.

Chapter Four 4.1 Recommendation of the process of management cost reduction in Toyota Motor Corporation (PLC)Company can reduce costs in various ways. And these will ultimately help the organisations to achieve its goals and objectives.The cost reduction techniques includes following steps:Identify the areas where the cost can be saved: in this step the company needs to critically evaluate its cost structure and identify the areas where they can reduce the cost in more efficient and effective manner.Quantify the cost savings: in this step the company needs to quantify the amount of cost that they can reduce which the identify in the first step. This helps to identify the most effective areas and concentrate more on such area.Test cost reduction process before implement: At this step the organisation needs to consider whether the quantified Costs can be reduces in actual scenario and they need to evaluate the impact of such reduction to the other processes such as quality of the product, impact to the brand name from such reduction etc.Implement the cost reduction activities: The Company must implement the cost reduction activities in the areas where they have identified in the previous steps. Due attention needs to be given to the area where there is a effective cost reduction is available.Ensure that cost reduction has taken place: Once the process has implemented the management needs to make sure that the targeted cost reduction has taken place.With regard to specific costs that has a significant impact on the company can use following techniques and method to reduce the cost: Company can enter in to long term suppliers which help the company to obtain more favourable payment terms and attractive discounts. The company can use several suppliers to purchase goods and thereby reduce or eliminate the bargaining power of the suppliers and obtain the most favourable prices. To minimise the wastage in the production process the company can use the latest cutting edge technology in its manufacturing facilities. To reduce the finance cost the Toyota may grant discount to customers who settle their dues on time. Toyota can discuss with suppliers to obtain more favourable credit periods.

4.2 Evaluate the potential for the use of activity based costingActivity Base Costing (ABC) is a relatively new management accounting model which is a mechanism whereby assigning cost of production based on the activities involved in the production process and the resources utilized by such activity (The Economist. 2009). ABC is an alternative to traditional management costing techniques.According to ABC technique, Toyota needs to: Identify the activities involved in the production process. Allocate the cost to each activity based on the resource requirement Allocate the cost of each activity to each product based on the requirement of such activity by such product.If Toyota uses Activity Based Costing method to compute its unit cost, it will be able to do a effective pricing of the products since this method computes the cost of the product based on the activities involved in the production process instead of using a single basis such as machine hours or labour hours utilized by each product which are used in the traditional techniques.Activity Based Costing has following advantages: Activity based costing gives more accurate information about the product cost rather than other cost accounting techniques. Under activity based costing overhead costs can be understand in a better manner. Activity based costing method is a simple costing method which can be understood by everyone. Activity based costing take in to account unit cost rather than the total cost of the product and by this cost drivers can easily identifiable. Activity based costing can be used to implement performance management methods such as scorecards. Activity based costing can be used for benchmarking. By using activity based costing the organisations can identify losses incurred in the production process and is able to identify activities or processes which will not add value to the production process. Results obtained from Activity based costing can be used for other modern management techniques such as six sigma. Activity based costing asses the cost of individual activities based on its utilisation of resources.

Activity based costing has following disadvantages: Implementing activity based costing system to the organisation can be involved high cost as such costing system needs significant amount of resources such as sophisticated computerized system, skilled labour etc. Once the system is implemented the cost incurred the data is high. Accordingly in order to obtain the information data needs to be collected, validated, checked and feed to the system which incur high labour cost. Activity based costing system produce various information are significantly difference from information generated by other costing techniques. Owing to this reason the management may tend to use information provided by existing costing technique. Furthermore when evaluating the performance of the management information produced by existing costing technique may used. Therefore the management will pay their attention on existing costing technique rather than the activity based costing. Activity based costing method produce data which can be misinterpreted easily by managers. Thus due attention need to be given when interpreting information and making decisions. Activity based costing is not in line with the Generally Accepted principles (GAAP) which leads to prepare another set of accounts to Toyota with Generally Accepted Accounting Principles. Practical implementation of Activity based costing is challenged due to the serious challenges faced by the Company (Toyota).

Conclusion There is every need for organisation to renovate on the basis of its quality control, and also put more efforts on the investment appraisal, capital budgeting, market orientation, forecasting and cost management as they are the key issues to keep maintain in financial management. The Toyota as an organisation need to put more efforts on capital budgeting, and made more concentrated to be effective budgeting and controlling for the future expenses.

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