Management Accounting: Functions and Concepts

This assignment delves into the core concepts of management accounting, exploring its various functions, including planning, controlling, and decision-making. It examines widely used techniques like activity-based costing, budgeting methods (zero-based and activity-based), and the balanced scorecard. The document also analyzes the advantages and limitations of these practices, providing a holistic understanding of management accounting in contemporary business environments.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
P1 Management accounting and essential requirements of management accounting...........3
P2 Discussing three management accounting reporting method that can be used by Tata
motors.....................................................................................................................................6
TASK 2......................................................................................................................................7
P3 Producing income statement as per marginal and absorption costing system..................7
TASK 3......................................................................................................................................7
P4 Discussing tools which are used by Tata Motors for budgetary and financial control.....7
P5 Comparing two business units in relation to the manner in which they have used
management accounting systems for responding financial problems..................................11
CONCLUSION........................................................................................................................12
REFERENCES.........................................................................................................................13

INTRODUCTION
Management accounting plays crucial role in the business to resolve complex
problems by taking effective decisions. Present report deals with importance of management
accounting to Tata Motors which is engaged in automotive industry and satisfying customers.
Various systems and reports of management accounting are discussed in the report.
Furthermore, marginal and absorption costing techniques are also assessed. Moreover,
functions of management accounting and requirements in the organisation are also listed.
Various planning tools are provided with advantages and disadvantages and also how
management accounting can be used to respond to financial problems are discussed in this
report. Thus, management accounting has immense importance in the corporate world to
assess performance, improvise over the same, and take enhanced decisions.
P1 Management accounting and essential requirements of management accounting
Management accounting is quite useful as it provides valuable advice to management
in taking effective decisions for the betterment of the company. This type of accounting
draws results from the financial accounting and provides clarity to management to make
enhanced decisions. Tata Motors, which is an automobile giant,also takes into account this
information so that it may be able to make improvement in the operational tasks with much
ease. This means that management accounting information assists managerial personnel’s in
taking enhanced decisions (Cooper, Ezzamel and Qu, 2017). Internal operations can be
improved with the help of this information and as such, company is able to perform well and
as such, management accounting information is quite useful for Tata Motors to improve its
performance in effectual way.
Moreover, costs are controlled in Tata Motors so that revenue may be maximised by
reducing the expenses and as such, cost accounting is major type of management accounting.
If expenditures exceed revenue, firm incurs losses and to overcome the same, cost related
reports are prepared which help company to cut down expenses in the best possible manner.
Thus, internal operations can be controlled and strengthened in effectual way. In relation to
this, functions of management accounting can be enumerated as follows-
1. Planning-

Planning is essential for the business and as such, budget is prepared. Management
accounting help to take decision and budget can be prepared as whole process of budgeting is
based on the accounting reports. For instance, if Tata Motors assess target profit for coming
period and should also assess what are the plans for successful achieving objectives.
2. Organising –
This is another useful function to organise framework within which employees will
carry out tasks in a better way. This means that allocation of responsibilities and duties are
imparted to each and every employees si that objectives can be easily met by the company.
Thus, divisions of the organisation carry out their functions quite easily as they all become
interlinked with one another (Sharma. 2018).
3. Controlling-
This is another major function of management accounting as control and performance
reports are provided to the management. The reports are then matched with budgeted results
so that actual output may be assessed. If deviations are found, then corrective actions are
taken to remove the same and improvement is done. Thus, variances are eradicated and
improvement can be made for achieving desired goals.
4. Decision-making –
Decision-making is the essence of management accounting as by using this
information, top managerial personnel’s are able to take enhanced decision for the betterment
of the company. Without performing above three functions, manager cannot plan and chose
for the best alternatives, which would help company to prosper with much ease.
Difference between management accounting and financial accounting is described below-
Management accounting Financial accounting
1. Information is provided to managerial personnel’s
for taking effective decisions (Jermias, 2017).
1. Information is imparted to users who have stake in
the business.
2. Management accounting has its focus on making
company internally strong and achieve goals.
2. While, financial statements are provided to
stakeholders to analyse and take decisions.
3. Management accounting is not mandatory to be
accomplished by the firm.
3. Financial 4accounting is mandatory so that financial
statements may be provided to users of accounting
information.
4. Detailed information regarding costs and expenses 4. Overview of various aspects are listed in the

are imparted by this type of accounting which aids in
decision-making.
financials of the company and no detail information is
present.
Essentials types of management accounting systems are as follows-
1. Cost accounting-
It is one of the main type of management accounting as it aims to control costs in the
best possible manner (Nitzl, 2018). Cost accounting help to initiate control over expenses and
as such, Tata Motors can easily cut down its expenditures in order to have maximum level of
production. There are various types of costs such as direct, indirect, fixed, variable and semi-
variable, which are to be effectively controlled so that expenses may not exceed revenue.
Cost accounting help to inject profits by reducing expenses in effective manner.
2. Inventory management system-
Tata Motors is a manufacturing company and as such, production department needs
adequate level of stock to be maintained. This is required so that orders received from the
customers may be fulfilled in timely manner. Thus, inventory is managed by the organisation
so that desired production may be achieved and no wastage may occur (Cooper, Ezzamel and
Qu, 2017). If inventory is ordered in more than required quantum, it unnecessary increases
cost of handling in the warehouse. Thus, inventory should be managed in adequate level to
accomplish production.
3. Price optimisation-
Price optimisation technique is a mathematical model, which is used to assess
customer demand in relation to change in the price of particular product. This means that
price is quoted in relevance to market and competition (Ax and Greve, 2017). If price is
charged low, Tata Motors would be unable to recover its costs and low profits will be made
and on the other hand, if price is high, customers will switch to rivals. Thus, price
optimisation system provides clarity to business that how much price should be quoted to
attract customers in effective way. Thus, it is quite useful system of management accounting.

P2 Discussing three management accounting reporting method that can be used by Tata
motors
Management reporting may be served as a control system which in turn furnishes
adequate information at various level of management. In the case of managerial reporting
system, concerned managers present and gives report at regular intervals. Tata Motors
undertake such formal system that provides management team with suitable information for
decision making. Prominent reporting system includes several characteristics such as
promptness, accuracy, comparability and consistency (Jermias, 2017). In accordance with
such aspect, managerial reports should be designed in such a manner which in turn helps in
comparing current performance with the past. Along with this, future business decisions are
highly based on managerial reports. Thus, manager of Tata Motors should ensure that all the
information contains in managerial reports must be accurate.
Effective management reporting offers high level of benefit to Tata Motors by giving
input for decision making purpose. Further, it also helps in enhancing the effectiveness of
management and aid in organizational growth. Managerial reports give clear indication to the
manager about actions that need to be undertaken for quality and cost control or management.
Along with this, reporting system also enhances the level of responsiveness towards the issue
arises.
There are several types of reports which can be used by Tata Motors for improving
operational aspects and performance such as:
 Cost reports: It presents the cost of material, labour and overhead that is highly
associated with the item produced. This report enables firm to do comparison of cost
of goods sold with selling price. Management of Tata Motors can set suitable prices
by undertaking such report (Nitzl, 2018). Hence, cost report helps manager in
planning and controlling profit margin to a great extent.
 Budget reports: Such managerial report includes income and expenses pertaining to
the future time period. With the help of such report management team of Tata Motors
can assess whether they should stay with budgeted amounts for the attainment of
goals or not. The rationale behind this, managers always look for the vendor or
supplier which offers raw material at fewer prices (Ax and Greve, 2017). Hence,
through evaluating such report, manager of such automobile company can find out
suitable ways for increasing revenue and decreasing expenses.

 Performance reports: This report contains information regarding budgeted and actual
monetary performance. Company prepares such report with the motive to evaluate
and assess departmental performance. By using this report, manager of Tata Motors
can do comparison of actual revenue and expenses with budgeted figures (Nuhu,
Baird and Bala Appuhamilage, 2017). This in turn helps them in assessing deviations
and reasons take place behind the same. Hence, referring the results of performance
report manager of the firm can make proper budgeting plan or framework for the
upcoming time period.
TASK 2
P3 Producing income statement as per marginal and absorption costing system
Marginal costing implies for the accounting system where variable costs are charged
in against to the unit cost. This management accounting system focuses on writing off fixed
cost in against to the aggregate contribution. It may be served as a principle costing technique
which is used by the majority of organizations for decision making purpose (MITCHELL and
NØRREKLIT, 2017). On the other side, absorption is known as full costing method under
which apportionment of total costs to the center is done with the motive to assess production
cost.
In marginal costing method, variable cost is considered as product, whereas fixed
expenses come under the category of periodical. On the other side, in the case of absorption
costing method, both fixed and variable expenses are directly attributable to the product.
Marginal costing method classifies overhead expenses in terms of fixed and variable. In
contrast to this, AC method presents overhead expenses as production, administration, selling
& distribution (Zimmerman and Yahya-Zadeh, 2011). MC presents and measures
profitability in terms of PV ratio. Further, in this, variances which take place in the opening
and closing inventory does not have high level of influence on cost per unit of output. Apart
from this, in AC, inclusion of fixed cost in manufacturing closely influences profitability
aspect (Difference between Marginal Costing and Absorption Costing, 2018).
Calculating number of units completed and packed in the period
On the basis of cited case situation, out of 3000 units, 2600 completed and packed in
the concerned period.

Producing budgeted Manufacturing and Trading Account for the period using:
(i) Absorption costing
Particulars Figures (in £)
Figure
s (in £)
Sales 500000
Material 150000
Direct labour Machining department 600
Finishing department 2700
Fixed Matching department 900
Finishing department 1800
less: closing stock 80 155920
GP 344080
Less: overhead expenses
variable Dispatch department 650
fixed Dispatch department cost 130
Packing boxes 2600 3380
NP 340700
(ii) Marginal costing
Particulars
Figure
s (in £)
Figure
s (in £)
Sales 500000
material 150000
Direct labour Machining department 600
Finishing department 2700
Dispatch department labour 750
Packing boxes 2600
156650
Less: closing stock 100 156550
Contribution 343450
Less: Fixed cost
Machining department 900
Finishing department 48000
Dispatch department 2600 51500
Net profit 291950

Suggest whether company should go ahead with this product
Considering outcome of absorption and marginal costing technique it can be
presented that Tata Motors should manufacture. This in turn offers positive as well as high
net profit to the firm and thereby contributes in the organizational growth.
TASK 3
P4 Discussing tools which are used by Tata Motors for budgetary and financial control
Effective planning is the key for organizational growth and success so business unit
requires making proper estimation or forecasting about internal & external aspects.
Attainment of high profit margin by making optimum use of financial resources is the main
objective of Tata Motors. Planning tools provide high level of assistance to the management
team in making forecast about the future aspects (Macintosh and Quattrone, 2010). It may be
served as an attempt that is made by the business unit for coping up with the situation of
uncertainties. For competent planning, appropriate forecast about the future aspect is highly
required. Forecasting usually starts with certain assumptions, management knowledge,
experience and judgment. Hence, there are several budgeting tools that can be used by Tata
Motors for planning purpose such as:
Budgeting: Budget includes expenditure that firm will incur for attaining the desired
level of profit margin. In the context of business unit, budgeting is highly significant which in
turn persuade personnel working at different level about the manner expenses need to be
incurred.
Zero base budgeting: In accordance with zero base budgeting tool manager of Tata
Motors should not consider past framework. In other words, as per ZBB manager needs to
start budget with zero base and make focus on assessing alternative ways of performing
activities. In this, every item of cash flow statement is re-evaluated by the manager for the
development of competent financial framework. Along with this, it also lays emphasis on
justifying expenses that needs to be incurred by the department. This budgeting method
assumes that no balances need to be carried forward in the upcoming time period. Moreover,
changes take place in market trend etc has significant impact on business activities and
financial aspects.
Advantages:

 ZBB facilitates efficient allocation of financial resources as it does not consider past
values. Thus, using ZBB tool Tata Motors can develop highly financial plan.
 Using ZBB technique redundant activities can be reduced to a great extent. Moreover,
it helps in identifying opportunities and cost effectual ways of performing activities.
In this way, ZBB assists in removing all unproductive activities and thereby helps in
making effectual use of monetary resources.
 It provides business unit or concerned departments with highly accurate plan.
Moreover, for computing operational cost every department relooks each and every
item of cash flow (Zero Based Budgeting v/s Activity-Based Budgeting, 2018). Hence,
ZBB presents clear view of cost in against to the desired goals.
Disadvantages:
 Preparation of budget as per ZBB is considered as highly time consuming process.
Moreover, in this, no past details pertaining to the financial aspects are considered by
the firm.
 ZBB demands for high manpower requirement because in this entire budget starts
from scratch. Hence, involvement of large number of personnel in budget preparation
closely impacts other business activities and performance.
 Further, to prepare budget as per ZBB, company requires highly talented personnel.
Justification of every line of item is highly difficult so business unit has to organize
training for the managers.
Activity based budgeting technique: This modern budgeting technique focuses on budget
preparation by taking into account overhead cost. Such management accounting tool does not
consider previous year’s budget for arriving at new one. In this, activities that incur cost are
deeply analyzed and evaluated. Hence, on the basis of outcome or results resources are
allocated to each activity. Tata Motors can bring efficiency in the activities by taking into
account ABB. Moreover, in this, by justifying cost drivers budgets are drafted by the
managers.
Advantages:
 ABB enables manager to eliminate all unnecessary activities and maintain appropriate
cost level. In this way, by reducing the level of expense and providing customers with

products or services at suitable price Tata Motors can gain competitive edge over
others.
 Activity based budgeting technique eliminates bottlenecks and thereby ensures
smooth functioning of the operations (Advantages, Disadvantages and Limitations of
Activity Based Costing (ABC) System, 2018).
 In ABB, emphasis is placed on evaluating each and every cost driver. Thus, by
avoiding all the irrelevant activities manager of Tata Motors can develop highly
effectual plan.
Disadvantage:
 Budget preparation according to ABB is highly complex and time consuming in
nature. Moreover, financial planning on the basis of ABB includes research and
analysis of various factors.
 In addition to this, to prepare budget on the basis of ABB manager of Tata Motors
requires in-depth understanding about the various functional area of business.
 In this, company has to employ top officials for conducting numerous analysis.
Hence, high resource consumption closely influences functioning and performance of
business unit.
Budgetary control: This is another most effectual technique that can be undertaken by
Tata Motors for planning purpose. On the basis of such technique, manager makes
comparison of actual figures with the budgeted aspects. In this, on the identification of
deviation managers make effort to assess the reasons associated with the same. Hence, using
the tool of budgetary control and taking into account the reasons for deviations management
team of Tata Motors can set specific, measurable, achievable, realistic as well as time bound
financial goals.
Advantages
 Tool of variance analysis helps in setting suitable standards for the upcoming time
period. This in turn enhances employee motivation and thereby makes contribution in
the attainment of organizational goals.
 Gives clear indication regarding the training need of personnel
 Provides assistance in recognizing and monitoring departmental performance on
periodic basis.

 Helps in developing suitable incentive plans for the personnel
 It helps in reducing production cost by eliminating wasteful expenses.
Disadvantages
 Sometimes high deviations occur in the financial aspects when manager fails to set
competent monetary plan. Hence, high deviations or unrealistic goals negatively
impact employee motivation and performance (Disadvantages or Limitations of
Budgetary Control, 2018). Success of budgetary control tool is highly depends on the support of top
management. In the case of failure pertaining to support from the side of top
management may result into inappropriate evaluation.
P5 Comparing two business units in relation to the manner in which they have used
management accounting systems for responding financial problems
Financial problems are the main parts of business unit which in turn has direct impact
on its growth and success. In this, tools and techniques of management accounting are highly
prominent that can be used by business unit for responding monetary problems. Jaguar is also
one of the leading automobile companies which provide customers with high-tech vehicles.
Similarly Tata Motors, Jaguar also undertakes management accounting tools for dealing with
monetary issues. However, tools which are employed by Tata Motors and Jaguar highly
differ to the significant level.
Tata Motors undertake benchmarking technique with the motive to measure and
evaluate financial performance. On the basis of such technique, manager of such automotive
firm does comparison of performance on periodical basis. This in turn clearly presents
deviations take place in financial performance in against to the budgeted figures
(Wickramasinghe and Alawattage, 2012). By taking into account such information manager
would become able to make modifications in financial framework within the suitable time
frame. Hence, benchmarking technique gives input for decision making and thereby helps in
improving performance (Garrison and et.al., 2010). On the other side, Jaguar undertakes key
performance indicator tool of management accounting for solving financial issues. Jaguar sets
several indicators regarding sales, profit, market share etc. Hence, by comparing current
performance in against to the set KPI’s Jaguar assesses the extent to which goals are met.
This technique of management accounting helps business unit in undertaking strategic action
for improvement (Baldvinsdottir, Mitchell and Nørreklit, 2010). However, if business unit

fails to set suitable KPI’s then it may result into inappropriate framework for decision
making.
Further, it has assessed from evaluation that Tata Motors undertake balance scorecard
tool for resolving financial issues or problems. Such tool of management accounting helps in
developing suitable link between financial and non-financial measures. Hence, the main
reason behind undertaking balance scorecard technique is that its measures and evaluates
performance from several perspectives such as customer, financial, internal business, learning
& growth (Balanced Scorecard, 2018). Hence, such strategic management performance
metrics provide high level of assistance in identifying & improving functions of a business
and their relative outcomes. Thus, strategic tool which is used by Tata Motors is highly
significant as it helps in decision making by considering both financial and non-financial
aspects (Hilton and Platt, 2013). On the other side, to assess whether performance of
company is in line with the strategic goals or not Jaguar undertakes financial governance tool.
In accordance with this, by taking into account stringent set of rules and guidelines financial
process as well as performance is governed. By undertaking this, company can assess that its
performance is in line with the specific guidelines or not (Ward, 2012). Nevertheless, in the
context of business unit, there are several factors which impact organizational performance
which cannot be tracked as per guidelines.
Referring overall evaluation, it can be depicted that both the companies undertake
highly prominent management accounting tools for decision making and performance
evaluation. However, as compared to Jaguar, Tata Motors selected suitable techniques that
help in tracking performance more effectually from several perspectives. Hence, it can be
presented that benchmarking and balance scorecard technique helps in responding monetary
problems in the best possible way. Along with this, it can be presented that KPI’s and
financial governance is also the most effectual techniques which in turn helps in dealing with
the issues related to financial aspects. However, at the time of making selection of MA tools
firms should keep in mind their benefits and drawbacks.
CONCLUSION
By summing up this report, it has been concluded that management accounting
systems are highly significant which in turn assists in developing strategic framework. It can
be seen in the report that both financial and management accounting systems differ from each

other. It can be summarized from the evaluation that by using management accounting
reporting system manager of Tata Motors can assess discrepancies and thereby would
become able to take competent action for improvement. It can be stated from the evaluation
that at the time of determining manufacturing cost manager considers both fixed and variable
cost. Hence, Tata Motors should lay focus on undertaking absorption costing over others as it
presents better view of cost and profit margin. Besides this, it can be inferred that Tata
Motors should undertake modern budgeting and budgetary control system. This in turn
facilitates optimum use of financial resources. It has assessed that Tata Motors used
management accounting system prominently in against to the rival firm.

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