Cost Behaviors in Toyota Case Study Paper Example

The company that I have chosen is the Toyota company. Toyota is a Japanese car manufacturing company ("Toyota Motor Corporation," 2018). The company manufactures a wide range of cars which includes pick-up trucks, sports utility vehicles, and saloon cars, these cars vary in the price range as the company produces both cheap affordable cars and expensive luxury cars. During production companies incur different types of costs, these include fixed variable costs and mixed costs. Fixed costs can be described as costs that are always constant regardless of the sales or production the company has. On the other hand, variable costs are costs that change depending on a company's output ("Variable Costs," 2018). A cost driver in the other hand can be described as a situation that directly causes an increase or decrease in the costs ("Cost Driver," 2018). Mixed costs can be defined as a mixture of both fixed and variable costs. Like most companies, Toyota incurs Fixed, variable and mixed costs during production. This paper is going to highlight some of these costs.

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There are different types of costs that Toyota incurs during production, these include:

Salaries: These are fixed costs, salaries account for the money that paid to employees who work at the company in all departments. Salaries are always fixed regardless of production or sales. A cost driver, in this case, would include a demonstration by the employees seeking higher pay, this situation is potential cost driver as demonstrations by the whole company would force the hand of the Hr. to consider raising the salaries.

Shopping costs: In order to sell cars in foreign countries, the company needs to transport cars. Transportation costs are variable costs, and this is because the company will incur transportation costs only if there are cars already transported. A potential cost driver, in this case, is a hike in fuel prices, this is because the increase of fuel prices results to the increase in shipping costs.

Raw material expenses: Raw materials fall under the variable costs category as they include costs that the company incurs as a result of the materials used in production. No production means that they would be zero raw material expenses. In raw materials, the cost driver would be a scarcity of the material used. If metal suddenly became scarce, the prices would go higher.

Internet/phone connections cost: these are costs that the companies will incur as a result of internet and telephone usage. These services have a fixed charge which is a flat rate charged whether or not the services have been used and a variable charge that changes depending on the consumption. As a result, internet and phone bills become mixed costs. The cost driver, in this case, purchase of new equipment that consumes electricity or fuel faster than the previous ones.

Research and development: Toyota sets aside a certain amount of money to finance research and development of new cars that would help the company stay ahead of technology, this helps the company keep competition at bay. This is a fixed cost because the company decides on the amount of money that can be allocated to the research and development without affecting the company's finances. In this case, a potential cost driver would be the development of a fascinating product. The company might want to add more finances to the team to ensure that the best ideas are pursued.

Rent/leasing costs: The company also spends money on showrooms and warehouses that are rented. This is affixed cost because the company has to pay for the services even in times when the showroom is empty. An increase in property value is a cost driver as it would prompt the owner of the structure to increase rent.

Insurance costs: The Toyota company needs to pay insurance costs in order to avoid losses that may be incurred as a result of accidents or natural disasters. This is a fixed cost as the same rate of insurance will be paid regardless of the production rate. The potential cost driver, in this case, would multiple cases of accidents in the company. The insurance company would increase their rates.

Fuel/electric costs: Machines that are used to assemble cars consume electricity, the electricity is consumed according to the amount of production that has been done. Therefore, fuel and electric costs are variable costs. A potential cost driver in fuel costs would be scarcity, this is because fuel is a non-renewable form of energy.

Repair costs: The machines used in the company often fail or get spoilt, the money spent on repairs is variable as wear and tear of machines occurs as a result of production. The cost driver in repair costs is the overall difficulty of fixing the machine, the harder to is the higher the costs.

Purchase of equipment: The equipment that is used to manufacture cars is bought once, this means that it is a fixed cost because it will remain the same despite the increase or decrease in production. One cost driver in this model of the equipment. Newly released products are slightly cheaper.

Conclusion

It was reasonably easy to determine between the variable, in order to determine whether the cost is fixed or the company should look at the fiances, id a transaction is the same for a constantly long time then it is a fixed cost, on the other hand, variable coast are different every month.

References

Cost Driver. (2018). Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/accounting/cost-driver/

Toyota Motor Corporation. (2018). Retrieved from https://www.britannica.com/topic/Toyota-Motor-Corporation

Variable Costs. (2018). Retrieved from https://www.myaccountingcourse.com/accounting-dictionary/variable-costs