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Toyota: Activity-Based Costing and the Prius Battery Plant
Activity-Based Costing is a good way to consider the impact on pricing and distribution capability that Toyota's battery plant will bear. This implicates two activities for Toyota: the greater capability to meet demand on its Prius and the ability to produce a key resource for the Prius through in-house operations. The activities of Prius sales and battery production both come with inbuilt costs and distinct economic opportunities, which the ABC method of assessment helps to measure against one another.
The primary cost driver to be considered with respect to both of these activities is the cost of the facilities currently under construction. This includes such costs as resource materials, proper licensing and adherence to regulation, effective research and development and the regular long-term maintenance of such a facility. This points to a current cost-driver in the activity of producing the Prius, which is derived from the relative scarcity on the market of the materials needed for the Prius battery. This has long driven up the cost of funding activities pertaining to production and distribution, a condition to which Toyota has responded with the commission of its new facilities.
Accordingly, we find that "Limited supplies of the Prius led to a four per cent drop in U.S. sales this year through August for the market's most fuel-efficient car, even as gasoline prices topped $1.06 a litre. U.S. allocation of the cars is 15,000 a month, little changed from a year ago, said Jim Lentz, president of the Toyota City, Japan-based automaker's U.S. sales unit." (M.P., 1) This means that there is an activity-based cost relating to the acquisition of such batteries that likely exceeds that of in-house battery production. This strategy would be expected in the long-run to reduce the overall cost of the vehicle by reducing the market scarcity of the battery.
Works Cited:
Mixed Power (MP). (2008). Toyota Expands Hybrid Battery Plant. Mixedpower.com.
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