Importance of Management Accounting in British American Tobacco

BAT DIRECTORS REPORT 1
MANAGEMENT REPORT FOR THE DIRECTOR
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BAT DIRECTORS REPORT 2
Table of Contents
Introduction......................................................................................................................................3
Importance of management accounting.......................................................................................3
Management accounting techniques................................................................................................4
Financial planning........................................................................................................................4
Standard costing...........................................................................................................................4
Costing using Marginal technique...............................................................................................4
Historical cost accounting............................................................................................................4
Analysis of financial statements..................................................................................................4
Application of accounting techniques.............................................................................................5
Absorption costing.......................................................................................................................5
Contribution costing technique....................................................................................................6
Interpretation of the findings...........................................................................................................7
Future strategies for BAT................................................................................................................7
Product diversification.................................................................................................................8
Predict future demands.................................................................................................................8
Identify and manage risks............................................................................................................8
Innovation....................................................................................................................................8
Conclusion.......................................................................................................................................8
References......................................................................................................................................10

BAT DIRECTORS REPORT 3
Introduction
British American Tobacco was founded in the year 1902. It came into existence
following a joint venture between the then Imperial Tobacco Company and the United States
American Tobacco Company. The two companies agreed to join hands and reach out to other
territories. Since then, British American Tobacco has been the leading multination cigarette and
tobacco producing company with its head offices located in London. British American Tobacco
is also said to be the largest tobacco company in the world.
Definitions
Management accounting can be defined as an art of identifying, measuring, analyzing,
interpreting and communicating accurate and timely financial or statistical information to
managers with an aim of helping them to make decisions (Drury & Drury, 2013). This definition as
according to Drury.
According to (Maryanne, et al., 2006) management accounting is defined as providing
accounting information in a manner that will help the managers make decision and strategize.
As per the accounting association of America, Management accounting is defined as the
technique for proper laying down of strategies for better future performance (Drury, 2015)
India’s Chartered Institute for Accountants puts management accounting as those methods and
channels which help management to make decisions (Sinha & Vinayakam, n.d.)
Importance of management accounting (Drury & Drury, 2013)
Management accounting will help British American Tobacco in forecasting. Management
accountant will provide sufficient information to the managers on whether to invest on more
assets, to acquire more market or even to increase on the production by buying another
organization. Managers will be able to make decisions of whether to buy or produce raw

BAT DIRECTORS REPORT 4
materials. Management accounting will provide information on the cheaper alternative between
producing and buying and then the managers will be expected to opt for the alternative that
maximizes organizations revenue.
Management accounting will help to forecast cash flows. For British American Tobacco
group to be able to fund its future activities there must be sufficient working capital to procure
current assets and to cater for operating expenses. Management accountants are able to use
accounting tools to predict future cash flows and advise the managers on how to come up with
accurate budgets to make proper use of the available resources.
Management accounting enables managers to measure performance variance. There is a
need to keep track of company’s performance from time to time. Management accounting
therefore provides information which compares such performance over a range of period and
indicated which period the performance was poor and highlights some possible causes for the
same.
Management accounting techniques
Financial planning (Kallunki, 2010)
Financial planning is a strategic process of deciding how the business will afford to
achieve its goals. Business has both short term and long term goals which require funding
Financial planning technique helps in deciding in advance where and how to obtain these funds
to finance the business activities for the purpose of achieving the set objectives.
Standard costing
This technique involves the management accountants setting standard costs under most
efficient operation conditions. During normal production, the actual costs are compared with
standards costs and the variance is calculated and analyzed for purposes of controlling costs.
Costing using Marginal technique
This can be defined as the additional cost that is which results when a company
introduces another more product to the production line. In this technique, differential costing and
break even analysis are done to establish the contribution and the profitability of producing extra