Financial Decision Making IN Tesco plc

Financial decision making
(Task-1)

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Main body ......................................................................................................................................2
1. Role of management accounting techniques in decision making, planning and controlling
the business environment............................................................................................................2
2. Evaluation of management accounting techniques in the organization to enhance its
performance................................................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................6

INTRODUCTION
Financial decision making is the process of making decision by the finance manager to
control the cost of the organization and provide the suitable methods and techniques to calculate
the monetary and non-monetary performance of the company in particular period. The finance
manager take the decision regarding the borrowing ans lending of finance to improve the activity
of the company to get the higher performance and productivity. The report explains the various
roles and function of the management accounting techniques and evaluate the uses of
management accounting techniques in planning, controlling and decision making process.
The accounting and finance function of the organization is to record, monitor, evaluate
and maintain the financial information to get the information from different reports like balance
sheet, income statements, cash flow etc. The aim is to evaluate the account receivable, payable
and payroll to take the effective and efficient decisions. It is important for the company to
provide information in brief and provide it to the stakeholders to attract them towards the
organization.
Tesco is a British Multinational company which deals in groceries and general
merchandise goods such as clothing, food etc. It was founded in 1919 by Jack Cohen. It
expanded its business and operate the firm in 14 other countries by opening the store like
supermarket, hypermarket and superstore to provide their goods and services. Tesco is one of the
leading company in UK which compete with Sainsbury, Morrison and ASDA in UK market. It
provides the products via using different channels and media such as television, social media
advertisement etc(Darrough and Deng 2018).
Tesco use the management accounting techniques to evaluate the performance,
productivity and profitability of the company. The various techniques such as budgetary control,
planning, cost accounting help the organization to compare the performance and take the
effective steps to improve the performance of management, employees and organization.
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Main body
1. Role of management accounting techniques in decision making, planning and controlling the
business environment
Management accounting techniques help the organization to evaluate the performance
and measure the effectiveness and efficiency of the company in compare to its competitors. It
also helps them to protect the right of investors by providing proper plan and strategies to the
company. Te role of management accounting techniques are :
Financial planning : Financial planning is done by the organization to distribute the find
of the organization in different activities and decide the various sources of funds in the
organization. It helps the company to attain the goal and objectives within the proper cost and
time. Tesco use the financial planning technique to decide the cost of various goods and services
and invest the amount in various promotional activities. It helps the organization to prepare
proper plan for the company to get the effective result and achieve the goal and objective(Leonte,
Nedelcu and Dragan, 2015).
Financial statement analysis : Organization prepares various financial statements like
profit and loss account, cash flow statement, balance sheet, budget etc. to control and evaluate
the financial position. The role of management accounting is to provide the financial information
such as revenue, profit, expenses and source of income to the organization. Tesco prepares
financial statements in particular time period for evaluating the performance. The balance sheet
of the organization help the manager to evaluate the debt and liability of the company and
evaluate the various ratio such as profitability and solvency ratio to compare the position from
the last year performance and to different company in same industry to get the actual position
and growth in the market(Mintz, 2016).
Budgetary control : It is the process of controlling budget of the company by minimize
the cost and evaluate the different area of variation in budget. It compares the actual budget to
the expected budget and calculate the different variance in the comparison. The area of variances
help the company to get the information regarding the each activity (What is Budgetary
Control?, 2019). Tesco use the budgetary control technique to measure and control the
performance of particular accounting period. They compare the standard budget to the actual
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budget. The comparison helps Tesco to improve the performance and profitability by controlling
the expenses in unnecessary activities.
Marginal costing : Marginal costing refers to variation in total cost due to change in per
unit of output. It is applied in the organization when the additional cost involved in the activity
due to producing an additional unit of output. It includes the various cost such as direct material,
direct labour and variable overhead cost(Staneva, 2018). It helps the organization in valuation of
the stock and profitability of given accounting period. For example Tesco use the marginal cost
techniques to value the available stock and order the quantity according to the available stock.
Marginal cost help in calculation of the cost to determine the profit of the company. Marginal
costing help the manager to plan the activities and take decisions on the basis of the cost incurred
by the company.
2. Evaluation of management accounting techniques in the organization to enhance its
performance
The organization uses the various management accounting techniques to evaluate the
performance and provide the valuable suggestions to the company to get the objective and goal
of the organization. It helps the company to take the various decision like whether to invest in the
activity or not, appropriate method of calculating the cost and measurement of the company.
Tesco use the various management accounting techniques such as financial planning, financial
statement, cash flow statements, budgetary control, marginal costing, decision making, historical
cost etc. which help the company to get the financial information and present the true and
accurate position of the company in the market.
The various accounting techniques such as financial planning help the company to plan the
various resources to minimize the cost of the company and improve the performance of the
organization by providing effective tools and method to evaluate the performance. Tesco use the
financial planning tool to measure the performance of the organisation of particular accounting
year and get the goal and objective of the company(Rasyid, Sugiarto and Kosasih, 2017). Tesco
use the technique to plan the activity and finance in the organization and allocate the fund to the
different activities to get the effective and efficient result. The financial planning tool help the
company to plan the ways to get the resources for the company and measure the different
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methods to attract the customer towards the organisation. It is best tool for the company because
it is less expensive, use the expert and qualified knowledge to prepare the plan and organize
them to get the perfect result.
The budgetary control techniques used by the company to control the cost of the
company and find the area of variances. It helps the company to prepare the budget and
accomplish the organization activity within the budget(Melnychenko, 2017). Budgetary control
is the best technique for monitoring and controlling the activity like monitor the revenue, profit
and expenses of the company to the expected budget so the company can evaluate the different
activity and find the reason behind the variation.
The financial statements used by Tesco provides the financial information of the
company of particular accounting year(Nielsen, 2017). It contains the various information related
to the income and expenses of the organisation. It also explains the various sources and uses of
funds from the cash inflow and outflow of Tesco. It is used by the company to enhance the
performance by comparing the current year data to last year data and evaluate the performance
and growth of the company. It also helps them to compare the performance of tesco to different
competitive organization in market like Sainsbury, Morrison, ASDA etc. The financial statement
like balance sheet help the company to evaluate the ratio of the company like solvency,
profitability ratio and help them to analyse the performance in compare to other company in
same industry(Bettcher and et.al., 2016)
.
Tesco also use the marginal costing method to calculate the cost, profitability and
valuation of stock in the organization. It is suitable for the company because it is easy to use and
evaluate the performance and control the activities. It also helps company in decision making
process.
CONCLUSION
The report summarizes the various role of management accounting techniques in the
organization to compare the performance and attain the goal and objective of the company so
they can get the best result and increase the profit of the company. The accounting technique
such as budgetary-control, marginal costing, historical cost, financial statements, financial report
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to enhance and improve the organization performance. The report present the evaluation of the
accounting techniques in Tesco and how it helps the company to achieve the target and goal in
particular time period. From the report it can be concluded that the techniques used by the
company help them to communicate the information to the various stakeholders and help them to
take the effective decision to plan and control the activities.
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REFERENCES
Books and Journals
Bebbington, J. and Unerman, J., 2018. Achieving the United Nations Sustainable Development
Goals: an enabling role for accounting research. Accounting, Auditing & Accountability
Journal, 31(1). pp.2-24.
Bettcher, B.M., and et.al., 2016. Neuroanatomical substrates of executive functions: beyond
prefrontal structures. Neuropsychologia, 85. pp.100-109.
Darrough, M. and Deng, M., 2018. The Role of Accounting Information in Optimal Debt
Contracts with Informed Lenders. The Accounting Review.
Iwasaki, T., and et.al., 2018. The role of accounting conservatism in executive compensation
contracts. Journal of Business Finance & Accounting, 45(9-10. pp.1139-1163.\
Leonte, A.S., Nedelcu, A. and Dragan, R.G., 2015. Determination of Optimal Nondestructive
Technique (NDT) Using Multi-Criteria Analysis. In Applied Mechanics and
Materials (Vol. 760, pp. 615-620). Trans Tech Publications.
Melnychenko, I., 2017. Functions, Methods and Principles of Accounting in Improving an
Enterprise's Economic Security. Accounting and Finance, (2). pp.50-56.
Mintz, S., 2016. ACCOUNTING FOR THE PUBLIC INTEREST. Springer.
Nielsen, H., 2017. The Roles of Finance functions, Management Accounting, and Lean (Doctoral
dissertation, Aalborg Universitetsforlag).
Rasyid, A., Sugiarto, E. and Kosasih, W., 2017. MANAGEMENT ACCOUNTING
TECHNIQUES AND CORPORATE PERFORMANCE OF MANUFACTURING
INDUSTRIES. RISK GOVERNANCE & CONTROL: Financial markets and
institutions, p.116.
Staneva, V., 2018. Professional Competence For Using Acounting Estimates In Corporate
Financial Statements. Бизнес управление, 28(1). pp.44-53.
Online
What is Budgetary Control?. 2019. [Online]. Available through :
<https://www.myaccountingcourse.com/accounting-dictionary/budgetary-control>
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