Nalysis Paper on Komatsu, Ltd. (B) Profit Planning Product Costing

Please provide an analysis on the above information. The document is 9 pages. The numbers have Yen signs...however I was not able to put them in the document. Please see information below:
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Komatsu, Ltd. (B):
Profit Planning and Product Costing
Komatsu, Ltd., was one of Japan s largest heavy industrial manufacturers. Founded in 1917 as part of the Takeuchi Mining Co., Komatsu Ironworks separated from its parent in 1921 to become Komatsu, Ltd. In 1991, Komatsu was a large international firm with revenues of ~989 billion and net income of ~3 1 billion. The company was organized along three major lines of business: construction equipment, industrial machinery, and electronic-applied products. Together, these three lines of business generated about 80% of corporate revenues. Other operations, which accounted for the remaining 20% of corporate revenues, included construction, real estate, unit housing, chemicals and plastics, and software development. Construction equipment and industrial equipment were considered core businesses while electronics-applied products and other operations were considered new businesses.
In 1989, the company adopted a  3G strategy of growth, globalization, and group diversification. The growth objective required all divisions to expand aggressively, with 1995 sales expected to reach Yl .4 trillion. The globalization objective was to achieve worldwide production by the year 2000. In 1993, the firm s equipment was used in over 160 countries and was manufactured on three continents in eleven countries. The group diversification objective sought to aggressively develop three new business areas: electronics, plastics, and robotics. By the year 2000, the firm expected all non-construction products, including these three areas, to account for 50% of group revenues.
Profit Planning Process
Komatsu s profit planning process consisted of three major stages: policy making, profit planning, and evaluation. Prior to 1990, profit planning at Komatsu was undertaken semi-annually. However, an annual planning horizon was adopted in 1990. Three major reasons drove this decision. First, annual preparation reduced the work load on the profit planning group. Second, management felt that semi-annual plans engendered a short-term perspective. Finally, given the fluctuation in sales levels between the two semi-annual periods, the allocation of fixed costs between them was considered too arbitrary to be meaningful.
Policy-Making Stage
The process of profit planning began with the development of the firm s long-term plan, which consisted of the sales, production, and product development plans. This long-term plan provided strategic direction to the corporation for the next 5 to 10 years. It was updated from time to time to reflect current conditions and any changes in anticipated future conditions.
The development of the long-term plan began with the preparation of a preliminary long-term plan by the corporate planning and control department. This preliminary plan was submitted to the board of directors for approval. After the preliminary plan was accepted, a process that often required considerable discussion and amendment, long-term profit plans were prepared by each division. The development of these plans was coordinated by the corporate planning and control department to ensure that when aggregated they would support the preliminary long-term plan.
These long-term divisional plans were submitted to the board for approval. Upon their acceptance, a process that again often required considerable negotiation, the annual company policy was announced by the president. This policy, which was developed under the umbrella of the firm s 3G strategy, provided strategic direction for the year.
After discussion about the implications of the annual company policy, the corporate planning and control department prepared the firm s annual profit plan. This plan identified Komatsu s profit objective for the year. The acceptance of the annual profit plan by the board of directors initiated the preparation of the annual divisional profit plans. These plans were developed using sales and cost targets prepared by the sales and production departments.
Profit Planning Stage
The divisional profit plans were the basis of negotiations between headquarters and the divisions regarding production and sales volume. From these negotiations emerged the sales and production plans for each division, which were used to develop more power and equipment investment plans. The plans were combined to produce the preliminary divisional cost plans. The aggregation of the divisional sales and preliminary cost plans produced the all-Komatsu sales plan and a preliminary profit estimate. This estimate was compared to the target profit of the annual profit plan, and after a period of negotiations, the divisional plans were approved by the board. The final budget and cost plans resulted from this board review.
The final budget and cost plans were used as the basis for preparing more detailed budgets for each division (such budgets included general and administration, research and development, sales expense, warranty, and overhead). These budgets were used by the firm s cost system to generate product costs and transfer prices. The reported product costs and transfer prices were used to check the budget and to develop the execution cost plan and the profit plan by product.
The budget plans and profit plans by product were used to develop the all-Komatsu profit plan. This plan was sent to the board for approval, and after negotiations, the divisional execution plans were prepared. These execution plans were monthly profit and loss plans that were used as a benchmark against which to evaluate divisional performance.
Evaluation Stage
Actual sales revenue, sales quantities, and costs were compared to their execution plan equivalents on a monthly basis. Two reports were prepared for the board. The first report identified profit differences and the second analyzed in detail the reasons for the difference between actual and expected performance. Significant differences between actual and expected performance triggered the development of secondary plans, or countermeasures, as they were known. These countermeasures were designed to ensure that profit and sales shortfalls were as small as possible. For example, one year when sales of excavators and bulldozers were below budget, the sales of attachments were increased by introducing a number of new designs to create additional demand. Prior to their implementation, countermeasures were submitted to the board for approval. The execution plans were updated to reflect the effects of any countermeasures.
Product Costing
The evaluation stage relied heavily upon Komatsu s standard cost system. Five different variances were computed every month. Some of these variances were computed more frequently, but divisional reporting occurred once a month. These variances were the raw material and purchased parts price variances, the budget and operation volume variances, and the inventory variance. The two purchase price variances captured the difference between expected and actual prices. The raw material purchase price variance was determined upon purchase of direct and indirect raw materials. These materials were placed into inventory at standard costs. The purchased parts price variance was determined when the parts were used in the production process. Purchased parts were placed into work-in-process at actual and relieved at standard.
Labor costs and overhead expenses were debited to the production overhead account as they were incurred. As the production of a product was completed in each cost center, production overhead was transferred to the work-in-process account at actual volume and standard price. The monthly difference between the labor and overhead expenses was charged to the production overhead account and divided into two variances: the budget and operation