Management Accounting: A Comprehensive Analysis of Tata Motors

This report delves into the intricacies of management accounting, focusing on its application within Tata Motors. It explores various management accounting systems, reporting methods, and planning tools used by the company. The report also analyzes the benefits of these systems and their integration within organizational processes. Furthermore, it examines the advantages and disadvantages of different planning tools for budgetary control, including variance analysis, ABC costing, and budgeting. The report concludes by comparing how organizations adapt management accounting systems to respond to financial problems and how management accounting can lead organizations to sustainable success.

Management accounting
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Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................4
P1: Explain management accounting and give the essential requirements of different types of
management accounting systems that could be used by Tata Motors.........................................4
P2: Explain different methods used for management accounting reporting relevant to Tata
Motors..........................................................................................................................................6
M1 Evaluate the benefits of management accounting systems and their application within an
organisational context..................................................................................................................7
D1 critically evaluates how management accounting systems and management accounting
reporting is integrated within organisational processes...............................................................8
Task 2...............................................................................................................................................9
P3 You need to clearly produce two income statements showing absorption costing techniques
and marginal costing techniques..................................................................................................9
M2 accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents....................................................................................................14
D2 Produce financial reports that accurately apply and interpret data for a range of business
activities.....................................................................................................................................15
Task 3.............................................................................................................................................16
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control in Tata Motors...............................................................................................16
M3 Analyse the use of different planning tools and their application for preparing and
forecasting budgets....................................................................................................................18
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems......................................................................................................................19
M4 Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success..........................................................................................20
D3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success...............................................................21
Conclusion.....................................................................................................................................22
References......................................................................................................................................23
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Introduction
Management accounting is the technique in which various processes and functions are
undertaken to ensure the proper accounting in the business. For this there are various tools and
techniques that are required to be taken into account and all of them will be discussed in the
report presented below. In this, the case of Tata Motors will be used and on the basis of that, an
understanding of the important aspect of the business will be made. The income statements will
be prepared so that that earnings of the company can be ascertained and for that two approaches
will be used. The various planning tools will be taken into consideration which is used in the
budgetary control. The last part of the report will be based on the comparison of the company
with other so that financial problems are resolved in an effective manner.
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Task 1
P1: Explain management accounting and give the essential requirements of different types
of management accounting systems that could be used by Tata Motors.
Management accounting is the process in which all the management reports are prepared and by
the help of them, it will be possible for the management to have the accurate data which they will
be suing in the process of decision making (Holt, 2014). The information will be available at the
time and there will be an improvement which will be made with the help of it.
According to another definition, it is the method in which the cost of the business will be
analyzed so that it can be reduced and for this reports are prepared which will help in the
attainment of the business objectives. There are various functions of management accounting and
the most important among them are planning, controlling, organizing and decision making. By
the help of this managers performance will be made better (Ada & Ghaffarzadeh, 2015). The
financial accounting can also be undertaken and the main difference among both is as follows:
Management accounting Financial accounting
All the information will be used in this process
which means the financial as well as other.
Under this, the information which is related to
finance will only be undertaken.
The company will be the only user of this as
this is considered for internal management
only.
The external users will be requiring this so that
they can make the required decisions.
Under this, the reporting will be made as per
the discretion of the company.
This will be performed in accordance with the
set laws and standards.
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The time limit and format for this is not
particular.
This will be prepared for the specified period
which is generally one financial year.
The Tata motors will be requiring the data and for the collection of the same it will be using the
various systems which are as follows:
Inventory management system: This system will be used by Tata motors as in this it will be
collecting the information regarding the demand of its products and then in accordance with
them the stock will be maintained in the company so that no loss is made due to unsold stock
(Guga & Musa, 2015). The approaches can be used in this such as economic order quantity and
for the valuation purpose FIFI, LIFO, and weighted average can be used.
Cost accounting system: The Tata motors will be undertaking this as all the processes will be
evaluated and on the basis of them the cost that is involved in them will be determined. For this,
there are several costing techniques that are used by the company and they include normal
costing, standard costing, and actual costing. The most optimum cost which will have to be
incurred is identified under this so that company can establish control on that.
Price optimization system: The Cars which are manufactured by the company will have to be
provided to the customers at the fixed price and that will have to be decided by the company by
taking due care. It will be considering all the factors in this process whether they are internal or
external (De Toni, et. al., 2017). The methods which are used in this are classified into two
categories which are market-related and cost-based approaches.
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P2: Explain different methods used for management accounting reporting relevant to Tata
Motors.
Tata Motors will be making various decisions and for that, the information that is required is
taken from the reports that are prepared. The major reports which are used in the company are as
follows:
Budgets report: these are the reports in which all the information in relation to the cost and the
expenses which are to be made by the company in the coming period will be recorded. By the
help of them, it will be possible for the company to make the appropriate use of the resources
which are available with the company so that they can provide the company with the maximum
amount of benefits (De Jong, et. al., 2012). The targets which are specified in them will have to
be followed by all.
Variance analysis report: In this report, all the deviations which are made in the company of
the targets which are set in the budget will be identified and will be recorded. For this, the
company will be comparing the actual and the budgeted amount with each other. The findings
will then be used by the company in the making of the budget in the future. As all the loopholes
will be taken into consideration.
Cost report: The costs which are to be made by Tata motors will be recorded in this and by the
help of that proper planning will be made by the company so that they can follow the same and
attain the benefits with the help of them such as problem of shortage will be avoided and also the
total cost of the company will be reduced by which the overall increase in profitability will be
made in the business.
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M1 Evaluate the benefits of management accounting systems and their application within
an organizational context.
The systems which are used will be providing Tata motors with some of the benefits which are
as follows:
 The performance of the company will be improved and this will be because of the
planning which will be made by the company with the help of the systems (Goddard and
Simm, 2017).
 The information which is collected is then used by the managers in the making of such
decisions by which targets of the company will be achieved.
 The company will be experiencing the reduction in the cost of the budget will be there
and working will be done according to that.
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D1 critically evaluates how management accounting systems and management accounting
reporting is integrated within organizational processes.
The Tata motors are using both the systems and the reports in its business as by the help of them
it will be able to achieve the objectives which are set by them. They both are integrated as the
company will be using the information collected in the system for the formation of the reports as
this will not be possible without the help of systems (Lopez-Valeiras, et. al., 2015). This is
related to the organizations as in this process all the departments and sections of the company are
involved which makes all of them related to each other.
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Task 2
P3 You need to clearly produce two income statements showing absorption costing
techniques and marginal costing techniques.
(a) Calculate the number of units completed and packed in the period.
The number of units which were completed was 3000 units and out of 2500 were sold. But the
closing stock of the unpacked units is 400 which means that 2600 units were packed in the
period.
(b) Produce a budgeted Manufacturing and Trading Account for the period using:
(i) Absorption costing:
Income statement by using absorption costing
Particulars calculations Amoun
t
Sales 2500*200 500000
Expenses:
Direct material 3000*50 150000
Direct labor 3000/100*5*4 600
Finishing department 3000/20*6*3 2700
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Dispatch labor
department
2600/20*5 650
Packing box 2600*1 2600
Machining
Department
3000/100*6*4 720
Finishing department 3000/20*4*3 1800
Dispatch Department 2600*1 2600
Total cost 161670
Closing stock (400
units)
(150000+600+2700+720+1800)/
3000*400
20776
Closing stock (100
units)
(161670-20776)/2600*100 5419
Cost of sales 135475
Net profit as per absorption costing 364525
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(ii) Marginal costing:
Income statement by using marginal costing
Particulars calculations Amoun
t
Sales 2500*200 500000
cost of goods sold:
Opening stock 0
Direct material 3000*50 150000
Direct labor 3000/100*5*4 600
Finishing department 3000/20*6*3 2700
Dispatch labor
department
2600/20*5 650
Packing box 2600*1 2600
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Total variable cost 156550
Closing stock (400
units)
(150000+600+2700)/
3000*400
20440
Closing stock (100
units)
(156550-20440)/2600*100 5235
cost of goods sold 130875
contribution 369125
Fixed expenses:
Machining
Department
3000/100*6*4 720
Finishing department 3000/20*4*3 1800
Dispatch Department 2600*1 2600
Total fixed cost 5120
Net profit as per marginal costing 364005
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(c) Reconcile 2 accounting methods:
Reconciliation statement
Particulars Amoun
t
Net profit as per marginal
costing
364005
Closing stock -520
Net profit as per absorption
costing
364525
(d) Suggest the company if they should go ahead with this product.
According to the calculations which are made above it can be noted that the company is having
profit in both the situations and due to this it can be said that the production shall be done by the
company as it will be profitable for it and there is no risk involved due to which chances of loss
will arise.
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M2 accurately apply a range of management accounting techniques and produce
appropriate financial reporting documents.
The management accounting reports are formulated by the application of various techniques.
The company can carry out variance analysis by which the differences will be identified and they
can be eliminated in the coming period (Aurora, 2013). In addition to this, the costing methods
such as activity-based costing and other methods can be undertaken.
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D2 Produce financial reports that accurately apply and interpret data for a range of
business activities.
The calculations which are made above shows that the company is making the profits in both
cases but the amount of it differ in both the approaches. The reconciliation has been prepared and
with the help of that, it has been determined that the deviation which is arising are due to the
closing stock as the manner of treatment of fixed expense is different in both. This is because
marginal and absorption costing works on the different concept and have a different format for
the calculation of the profits.
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Task 3
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control in Tata Motors.
In the process of planning, there are various tools which can be used to improve the overall
process and ones which are undertaken by the Tata Motors are as follows:
Variance analysis: This is the tool in which company will be using the standard and the actual
amounts and then on the basis of the evaluation will be made which will be determining the
differences which have arisen in the business (Pilleboue, et. al., 2015). With the help of them, the
company will be establishing the control on all the issues which are faced.
Advantages:
 The performance of the company will be measured
 The departments will be held accounting so it ensures responsible accounting.
 The focus will be provided to those areas in which some deviation is determined.
Disadvantages:
 The results which are determined are often misleading.
 If the reporting is delayed then the whole process will suffer.
 They are generally for short term.
ABC costing: The Company will be required to calculate the cost of the product inappropriate
manner and for that this method will be used as in this all the activities which are undertaken in
the company will be taken into consideration (Dong, et. al., 2014). This is helpful in Tata Motors
as it involves various activities in the production process.
Advantages:
 Overheads which are incurred are identified in a better manner.
 The cost which will be identified will be more accurate.
 The cost on the basis of per unit will be calculated rather than using the overall cost.
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Disadvantages:
 The process involved in this is costly.
 The data which is used in this can be easily misinterpreted.
 The principles of the accounting are not followed in this.
Budgeting: The planning tool in which, the estimates will be made in respect of all the costs
which are to be incurred in the company. In this, the past, as well as the future data, will be taken
into consideration so that appropriate results are obtained (Amirya, et. al., 2014). For this, the
research will be made in which all the areas will be evaluated and the findings will be used for
the making of the proper budget.
Advantages:
 The future aspects are also taken into consideration.
 Communication and coordination will be enhanced in the company.
 The manner in which actions are to be taken is guided by them.
Disadvantages:
 This is a lengthy process which involves a lot of time consumption.
 The consideration is provided only to the financial aspects of the business.
 The flexibility is hampered as they are rigid and followed as made.
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M3 Analyse the use of different planning tools and their application for preparing and
forecasting budgets.
The Tata motors will be making the budget in respect of all the departments and for that, it is
required those techniques such as variance analysis, activity-based costing and standard costing
shall be used. By then the process is improved and the best budgets will be made which will help
the company in the attaining the benefit of the cost reduction and management of all the
resources (White, 2015). This will provide the company with the overall increase in the profits.
The tools such as SWOT, PESTLE and Porter’s five forces will be also be used so that all the
factors which affect the company in any manner can be identified (Berry, 2018). In this, the
internal aspects and the forces which are prevailing in the market will also be taken into account
so that they do not create any further issues.
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P5 Compare how organizations are adapting management accounting systems to respond
to financial problems.
The company faces various financial problems such as losses are faced and to deal with them it
is required that appropriate techniques shall be taken into consideration. Some of them are as
provided below:
Key performance indicators: The Company will be setting some parameters and the employees
will have to perform in accordance with that so that they can attain the required objectives. They
will be provided with the incentives and will have to perform in the manner by which they can
attain those (Carbon, 2014). Honda is following this technique to motivate its employees and so
Tata motors can also use the same to attain the benefits.
Benchmarks: The Company will be using the standards which are set with the help of the
policies which are followed by the other successful entities. In the given case the practices and
techniques of Honda are taken into use by which the company will be able to deal with the
problems which are arising in a most effective manner (Ajelabi and Tang, 2012).
Financial governance: The problems related to finance can be dealt with the help of this as in
this such policies are made by which better financial decisions will be taken and control will be
established by the company. Tata motors can also use this as Honda is undertaking this and by
this, all the resources will be utilized in the best possible manner to attain the maximum benefits
from them (Hassan and Ahmed, 2012). The financial issues which arise such as shortage of the
funds will be eliminated by this.
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M4 Analyse how, in responding to financial problems, management accounting can lead
organizations to sustainable success.
Management accounting will be sued by the company for various aspects that will be providing
the company with the benefits as they will be able to identify all the problems in advance and the
can design the manner in which they will be responding to the problems which have been
identified. For this, the techniques that are prescribed above will be taken into account and the
issues which are faced can be dealt in the most effective manner. They will be using the systems
and the reports which are made so that they can have all the knowledge about the happenings of
the company.
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D3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organizations to sustainable success.
The planning tools which are used help in the problem resolving as they provide a plan which is
to be followed by the company and by considering that all the actions will be performed in the
best manner. There will be fewer chances of the occurrence of the issues and errors in the
business. The parameters and the objectives which are specified are focused on the plan so that
they are achieved in the best possible manner. For this proper tools will be used so that all the
factors, internal and external that affect the performance of the company are taken into account.
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Conclusion
From the report that is presented above the manner in which Tata Motors is using the
management accounting and the benefits which are attained by it from the use of the same is
being identified. All the systems which are followed and the reports that are prepared for the
consideration of them have been discussed. The calculation of the marginal and absorption
costing is provided in which the profits which are made by the company in the process of
production is determined. The next part of the report provides the information about the planning
tools that are used in the company which helps in the establishment of the control of the
business. The advantages and disadvantages which are obtained by them are also determined.
The manners in which the financial issues are taken into account by the use of the various
techniques are also provided so that sustainable success is achieved in the company.
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