Correct Processes of Profit Planning Product Costing in Komasatu, Ltd Free Essay Example, 2250 words

It is interesting to analyze the processes followed by Komatsu in deciding the profits. This looks more realistic and down to earth compared to aggressive and arbitrary decisions taken by the Board of directors or the management of most of the contemporary business organizations. One interesting aspect is to use the divisional profit plans as the basis of negotiations between headquarters and the divisions regarding production and sales volume. It is normally other way round in traditional organizations, as the management at the top level develop these plans initially, and impose the same on divisions sometimes even without any discussions. What is unique in Komastu is that these negotiations facilitated to emerge the sales and production plans for each division. The beauty of the process was that using the same for developing more power and equipment investment plans. It is also reported that the plans were combined to produce the preliminary divisional cost plans. Perhaps this str ategy could have emerged based on their 3G strategy of growth, globalization, and group diversification. It is a good strategy to incorporate the views of a multi-dimension business such Komatsu. We will write a custom essay sample on Correct Processes of Profit Planning Product Costing in Komasatu, Ltd or any topic specifically for you Only $17.96 $11.86/pageorder now Otherwise, each division will palm of the blame to the others and try to scapegoat their responsibility. As we can see from the status of Komatsu prior to 1989, it was only the core divisions which were generating 80% of the profit. The new strategy helps every division to think in terms of growth and take relevant strategies to achieve the same. Similarly, what is more important is the transparency aspect of the lost and profit formulation process. Another crucial aspect is the focus of all the activities towards the initial long-term objectives. While Komatsu allows every division to prepare their plans, they also have a strategy to focus all those towards the objectives through continuous negotiations and assessing the same against the long-term objectives.