Allocation of fixed costs in business operations

Toyota: Cost Allocation of the Prius

The picture pertaining to the allocation of costs is complex and impacted by a wide array of factors. For Toyota, the burgeoning interest in its hybrid products has directly impacted not just the nature of costs allocated but also the geographical context of these costs. A current allocation discussion concerns the release of the Prius in the Japanese auto-market and its strong performance there. Though the focus of its cost allocation in this area has previously trained on the United States, success in the Japanese market is denoting a possible change in this area.

According to an article from 2009, "currently, Toyota is hoping to sell around 500,000 units of the Prius globally each year, with the U.S. market expected to absorb around half the sales." (Hanson, 1) In this context, the primary cost allocation is the in production and marketing of the vehicle in the U.S. market. However, with 80,000 advance orders reported in May 2009 for its third-generation Prius in the Japanese market, Toyota has begun to reconsider its allocation of costs geographically. Accordingly, Hanson (2009) reports that "while Toyota does have an 'initial allocation for the United States', very strong demand from Japan may cause the company to 'review its sales plan and reallocate the production plan'." (Hanson, 1)