Honda Case Study Accounting Management

Honda is a Japanese multinational corporation that is well known in the fields of manufacturing, automobiles and electrical appliances. The manufacturing company, which jumped from being the world’s number one automaker in 1959, now ranks him eighth behind industry leader General Motors. Corporate profits are generated from the various operations carried out under one company (Bhimani, Horngren, Datar & Rajan, 2015). In addition to its automotive business, Honda Motor Co., Ltd. provides energy products, motorcycle manufacturing, and financial services. The Japanese company expanded its global market by expanding into other areas such as aerospace, ship engines and robotics, spending 5.77% of his R&D turnover in 2013 on Honda. Manufacturing firms such as Honda must accurately classify its costs so that they appear currently in financial reports. The proper report of manufacturing costs will help Honda Company to evaluate its strategies and cost control methods to meet the company profitability, value chain and strategic goals (Mcintosh, 2014).

Development of challenges products that characteristics of Honda

Honda Company challenging moments is on how to boost the profitability of the firm. The sales volume challenge majorly in the original home country Japan and other parts of its market, as well as Asia, has experienced a mass decline in sales volume below the projected value due to economic slow-down. The declining value of the dollar against other currencies such as Canadian dollar, Brazilian real has influenced the product quality and related warranty costs (Bhimani, Horngren, Datar, & Rajan, 2015).

Cost Volume Profit Analysis

Cost terminology is a key component of accounting manufacturing firms. Like other manufacturing firms, Honda also faces the challenge of cost classification. To meet the strategic goals of the company, Honda management team need to approximate the future company profitability, costs and revenue to assist in future budgeting and operations monitoring. Drury defines Cost volume profit as an accounting technique that changes in profits in response to changes in sales volume, costs and prices (Banker, Basu, Bryzgalov, & Chen, n.d.). Cost volume profit analysis mostly used in order to determine the level of operating activity may generate company target profits, reduce losses to zero and monitoring of organizational performance. Cost Volume Profit analysis also assists in determining the future risk assessment in the production process when selecting the right cost concept. Cost volume profit analysis enables the management accountants to know the products to emphasize on the products that help generate high profit. There are two categories that can be used to perform the CVP analysis

Product quantity(units) sold

Revenue (¥)

CVP analysis begins with the basic profit function equation;

The contribution margin gave by;

Cost volume profit analysis in terms of units

From the above illustration and keeping the fixed constant, Honda Company predicts that products quantity that can attain the forecast profits is calculated as follows;

Profit = total revenue - total variable

Q= Units (quantity) required to obtain target profit

(p-v) is the contribution margin per unit

Q= units (quantity) required to achieve target profit

Cost Volume Profit analysis in revenue

According to Rajasekaran, & Lalitha, (2011) they highlighted that the percentage by which a unit selling price exceeds a unit variable is referred to as contribution margin ratio.

Sales Mix

Manufacturing firms such as Honda products and sells multiple products. Jones (2009) defines sales mix as the proportion of firm multiple products that an organization has to sell in order to maximize their total profit.

Process costing

Occasionally the Honda production goes through several specific jobs. Honda production cycle entails routine flow raw materials through several divisions. Under process costing, the firm capture the costs for yeah process or department.

Honda Motors process costing flow

Equivalent units

Careful reasoning is required in equivalent units assessments the amount of direct material injected relative to the total amount of direct material needed to complete the process.

Target income

Break is very imperative but not usually a satisfactory to most business interest may be diverted to sales level that can achieve targeted as a additional cost to fixed costs and the desired profits.

Target income is arrived at;

Sales = total variable costs + total fixed + targeted income

Honda targeted ¥600,000 income;

(Unit × ¥ 200) = units × ¥800 + 12000 + 600000

Solving

units × 1200 = 1800000

units = 1500

units to achieve targeted income 1500

Honda company success factor

The widespread economic recovery in most Honda dominated markets contributed highly to the uptrend sales revenue reported in the financial years 2012, 2013, 2014, 2015 and 2016. The economic growth resulted in increasing in consumer’s level of income leading to increasing consumer spending in Europe and other parts of Asia. The dedicated research and development team has been able to meet the changing customer needs (Nixon, & Burns, 2012). The department is currently working to enhance safety measures by producing environmentally friendly products. In the automobile business unit, Honda Company is striving to achieve at least two-thirds of its total production units to be a plug-in hybrid and zero emission (Cafferky, 2014). In the motorcycle unit, Honda Company strives to achieve electrical motorcycles (EV-CUB), model. The difficulty exists in popularizing the electric motorcycles to the other major regions such as ASEAN. The power products units targets expanding their electrical products i.e. electrical lawn mowers (Brewer, 2017).

Recommendation

The change in the business environment has enables Honda group to take advantage and strengthen corporate enterprise that adapts quickly to the dynamic business environment that affects customers several varied needs in the global market (Brewer, 2017).

References

Banker, R., Basu, S., Bryzgalov, D., & Chen, J. Asymmetries in Cost-Volume-Profit Relation: Cost Stickiness and Conditional Conservatism. SSRN Electronic Journal, 5(234), 543-700. http://dx.doi.org/10.2139/ssrn.2312179

Bhimani, A., Horngren, C., Datar, S., & Rajan, M. (2015). Management and cost accounting (1st ed.). Boston: Pearson.

Brewer, G. (2017). Student PowerPoint Presentation. Highered.mheducation.com. Retrieved 5 April 2017, from http://highered.mheducation.com/sites/007802563x/student_view0/chapter5/student_powerpoint_presentation.html

Cafferky, M. (2014). Break - even analysis (1st ed., pp. 198-265). New York: Business Expert Press.

Jones, P. (2009). Budgeting, costing and estimating for the injection moulding industry (1st ed.). Shrewsbury: ISmithers.

Mcintosh, R. (2014). Reference book of accounts for manufacturing and mercantile companies (1st ed.). [Place of publication not identified]: Book On Demand Ltd.

Nixon, B., & Burns, J. (2012). Strategic management accounting. Management Accounting Research, 23(4), 225-228. http://dx.doi.org/10.1016/j.mar.2012.09.005

Rajasekaran, V., & Lalitha, R. (2011). Cost accounting (1st ed.). Delhi: Pearson.