Part 1

a) Calculate the cost of Work in Progress

Cost of goods manufactured = Cost of goods available for sale + Beginning finished goods inventory

Cost of goods manufactured = $ 360,000 + $ 55,000

Cost of goods manufactured = $ 415,000

Total Manufacturing Cost = (Direct material used + Direct Labor)/(1-Manufacturing Overhead)

Total Manufacturing Cost = ($ 160,000 + $ 80,000) / (1-0.40)

Total Manufacturing Cost = $ 240,000 /0.60

Total Manufacturing Cost = $ 400,000

Cost of Goods manufactured = Total Manufacturing Cost + Work in progress at beginning - work in

progress at end

Work in Progress at end = Cost of Goods manufactured – Total Manufacturing Cost – Work in

Progress at beginning

Work in Progress at end = $ 415 000 - $ 400 000 - $ 35 000

Work in Progress at and (Destroyed) = - $ 20 000

b) Calculate the cost of Finished Goods

Cost of Sales = Sales Revenue- Gross Profit

Cost of Sales = $ 420 000 – ($ 420 000 * 0,40)

Cost of Sales = $ 420 000 - $ 168 000

Cost of Sales = $ 252 000

 Finished Goods at the End = Cost of goods available for sale - Cost of goods sold Finished goods at

end

Finished goods at end = $ 360 000 - $ 252 000

Finished goods at end = $ 108 000

Finished goods destroyed = $108,000

Part 2

1) With reference to the above statement describe what is meant by value chain?
In order to deliver a product or service to the market, firms usually have to go through certain set

process or a chain of activities. This chain of activities is called Value Chain. Often these activities are

interlinked and inter dependent on each other. Unless one activity is performed the next activity cannot

happen. Hence its Value Chain. This chain of activities adds value to the product or service.

2) Explain how the value chain may be used to estimate costs?

It is important for a company to arrive at a competitive advantage in order to sustain in a highly

versatile and complex competitive market. This is achieved by various means. Most often its

competitive advantage is through differentiation of Price. Price differentiation is a company

differentiates itself through price by offering a distinct product or service. Value chain can help

determine or achieve a competitive advantage. A firms internal Value chain is all the technological or

physical activities which adds value to the product. By understanding the value chain, a firm can

determine its cost of the product or service. This is done by identifying the cost incurred in various steps

in order to arrive at the final product.

 3) Describe each segment of the value chain and explain why information about

costs in the various segments of the value chain can be useful to mangers?

According to Porte’s Value chain, activities can be divided into two broader types: primary activities

and support activities. (Porter, 1985)

Primary Activities
Primary include the five main activities. All these activities are directly involved in the production

and selling of the actual product. The primary activities cover the physical creation of the product, the

marketing of the product or service, transfer to the buyer as well as after sale assistance.

The five primary activities are:

Inbound Logistics  Operations  Outbound Logistics  Marketing and Sales  Service

INBOUND LOGISTICS
Inbound logistics involves the acquisition and procurement of raw materials and the activities

associated with inbound logistics are receiving, storing and disseminating inputs to the product.

Examples: material handling, warehousing, inventory control, collection and returns to suppliers.

OPERATIONS
The next step is for operations to convert the inputs in the desired product. Examples: machining,

packaging, assembly, equipment maintenance, testing, printing and facility operations.

OUTBOUND LOGISTICS
Outbound logistics involves the delivery of finished product as well as the logistics around it. These

activities may include collecting, storing and physically distributing the product to buyers. Examples:
finished goods warehousing, material handling, delivery vehicle operations, order processing and

scheduling.

MARKETING & SALES

The fact that products are produced doesn’t automatically mean that there are people willing to

purchase them. Activities associated with marketing and sales are therefore to provide a means by which

buyers can purchase the product and induce them to do so. Examples: advertising, promotion, sales

force, quoting, channel selection, channel relations and pricing.

SERVICE
In today’s competitive era, after-sales service is just as important as promotional activities.

Complaints from customers are easily spread and shared through the internet and this may affect a

company’s reputation The activities associated with this part of the value chain are providing service to

enhance or maintain the value of the product after it has been sold and delivered. Examples: installation,

repair, training, parts supply and product adjustment.

Secondary Activities:

PROCUREMENT
Procurement refers to the function of purchasing inputs used in the firm’s value chain, not the

purchased inputs themselves. Each support activity requires purchased inputs Purchased inputs include

raw materials, supplies and other consumable items as well as assets such as machinery, laboratory

equipment, office equipment and buildings. Procurement therefore needed to assist multiple value chain

activities and not only inbound logistics.

TECHNOLOGY DEVELOPMENT (R&D)

 Every value activity involves technology, whether it is knowledge, procedures or technology

embodied in process equipment. Technology development activities can be grouped into efforts to

improve the product and the process. Examples are changes in telecommunication, accounting software,

and customer servicing procedures.

HUMAN RESOURCE MANAGEMENT

HRM consists of activities involved in the recruiting, hiring (and firing), training, development and

compensation of all types of personnel. HRM affects the competitive advantage in any firm through its

role in determining the skills and motivation of employees and the cost of hiring and training them.

Some companies (especially in the technological and advisory service industry) rely so much on talented

employees, that they have devoted an entire Talent Management department within HRM to recruit and

train the best of the best university graduates.

FIRM INFRASTRUCTURE
Firm infrastructure consists of a number of activities including general (strategic) management,

planning, finance, accounting, legal, government affairs and quality management. In accounting, many

firm infrastructure activities are often collectively indicated as ‘overhead’ costs. However, these

activities shouldn’t be underestimated since they could be one of the most powerful sources of

competitive advantage.

4) Identify and explain the major purposes of value chain using examples from
your selected annual report

Value Chain analysis of Toyota Motors

Toyota is a well-known motor manufacturing company, known for its excellent production and

supply chain capabilities. The company has earned an excellent level of trust among its customers.
Toyota has managed its value chain very well. The value chain includes the entire stage from product

conception to after sales service. Managing the value chain can help with increasing

productivity. Toyota is known for its excellent production management. The following is an analysis of

the company’s 2018 Annual report. (Toyota, 2018)

PRIMARY ACTIVITIES:

INBOUND LOGISTICS
Toyota has a large supply chain, It receives parts from thousands of suppliers located from around

the globe and has the capabilities to handle the inbound logistics efficiently. Furthermore, it has a

worldwide network of distribution centres and warehouses that receives parts from the suppliers across

the globe.

OUTBOUND LOGISTICS
Toyota group has various parts and logistics centres across the globe. These centres distribute parts

and orders on a daily through its network of warehouses and distribution centres. “The Toyota Parts

Centre Europe is its central distribution centre, at the core of its parts supply chain. The centre is located

in Belgium and ships thousands of parts every day to its regional depots across the entire region”

(Toyota, 2019)

OPERATIONS
Toyota is a global brand, has its headquarters in Japan, with its operations spread throughout the

world. The brand also serves its customers across the globe through a large and global distribution

network. Apart from its several manufacturing and research and developments sites, the brand has

several parts distribution centres in various locations throughout the globe.

MARKETING & SALES
Toyota is operating in a highly competitive market and is facing stiff competition from the other

vehicle brands. To retain its market share and customer base, Toyota makes major investments in

marketing and promotions. Toyota uses a mix of traditional and modern advertising mediums for

promoting its brand and products. Apart from its own website and social media, the brand also uses its

sales and distribution channel for marketing. Toyota promotes its brand significantly through its

presence in motorsport and motor shows.

SUPPORT ACTIVITIES

TECHNOLOGY
Toyota is a well-known brand worldwide, known for its technology, efficiency and engineering.

Apart from great production technology, the brand has increased its investment in technological

innovation for growth. It has its own research centres and continuously invest in better production

methods. In the 2018 financial report, a clear emphasis is on the integration of connected technologies to

improve safety and a better motoring experience.

INFRASTRUCTURE
Toyota has maintained a large infrastructure globally. From its headquarters in Japan to North and

South Americas as well as Asia and Europe, Toyota has maintained an extensive presence throughout

the globe. Currently led by Shigeki Tomoyama (Executive Vice President) , the brand has an impressive

presence in most of the major markets of the world.

HUMAN RESOURCE MANAGEMENT

 Toyota had 369 124 employees in 2018. The brand believes in a human centric approach to value

creation and therefore focuses on the development of its human resources. In the automotive industry,

smart and able human capital can be a major source of competitive advantage.

PROCUREMENT
Toyota procures raw material from thousands of suppliers around the world. In 2009, the brand

formulated a specific ‘Toyota way of purchasing’ that lays down the policies and principles that the

procurement staff must follow. Through its procurement strategy, Toyota has always worked towards

contributing to local economies.

Works Cited
Toyota. (2019, July 15). European Logistics. Retrieved from Toyota Logistics: https://www.toyota-

europe.com/world-of-toyota/feel/operations/made-in-europe/logistics

University of Cambridge. (2019, July 15). IfM. Retrieved from Porter's Value Chain:

https://www.ifm.eng.cam.ac.uk/research/dstools/value-chain-/

Porter, M. (1985). Competitive Advantage: Creating and sustaining superior performance. NY: Free Press.

Toyota. (2018). Annual Report Report 2018.