Toyota (target costing)

Topics: Cost, Costs, Cost accounting Pages: 31 (5717 words) Published: September 13, 2014
Harvard Business School

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May 30, 1997

Toyota Motor Corporation: Target Costing System

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If Toyota does one thing better than other automakers, it is cost management. After earning a reputation for quality and fuel efficiency in the “economy models,” we moved successfully into upscale models, like the Lexus line. But we still pride ourselves in the cost competitiveness of our products in every price stratum. The history of Toyota is a story of unceasing efforts to reduce costs. Toyota Motor Corporation 1992 Annual Report

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Toyota Motor Corporation started as a subsidiary of the Toyota Automatic Loom Works, Ltd. It was founded in 1937 as the Toyota Motor Company, Ltd. It changed its name to the Toyota Motor Corporation in 1982 when the parent company merged with Toyota Sales Company, Ltd. In 1993, Toyota Motor Corporation (Toyota) was Japan’s largest automobile company. It controlled approximately 45% of the domestic market. Its next largest Japanese competitor was Nissan, with approximately 25% market share, followed by Honda and Mazda, which together represented about another 20%. The remaining 10% of the domestic automobile market was made up of several domestic manufacturers, including Isuzu, and several foreign competitors, such as Mercedes Benz and the “big three” American firms: General Motors, Ford, and Chrysler. The domestic and world automobile markets were characterized by intense competition. Models were brought out rapidly despite their high development costs. Fractions of a percentage of market share were often viewed as representing the difference between success and failure.

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Globalization

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Over the years, Toyota had evolved into a global firm. In 1993, a considerable part of the firm’s overseas markets were serviced by local subsidiaries that frequently designed and manufactured automobiles for local markets. For example, local plants produced almost one-third of the vehicles sold in the North American market. These vehicles were produced in three plants, one in Kentucky, another in Ontario, Canada, and the New United Motor Manufacturing Inc. (NUMMI) joint venture plant with General Motors. These plants produced approximately 400,000 vehicles per annum, including 220,000 Camrys, 170,000 Corollas, and the remainder being pickup trucks. Production volumes for pickup trucks were expected to increase to approximately 100,000 in the next

Professor Robin Cooper of the Peter F. Drucker Graduate Management Center at The Claremont Graduate School and Professor Takao Tanaka of Tokyo Keizai University prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1997 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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This document is authorized for use only by Linghua Wang at Chinese University of Hong Kong until May 2013. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.

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Toyota Motor Corporation: Target Costing System

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few years. In 1994, the firm expected to begin exporting vehicles from North America to markets such as Japan and Taiwan. In addition to automobiles, the firm also manufactured and sold forklifts. Toyota controlled 70% of the forklift market in the United States.

The same commitment to local manufacture and control was apparent in Toyota’s other major overseas markets. In Europe, two new UK plants began producing engines and passenger cars at the end of 1992....
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