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Management Accounting at Tesco

   

Added on  2020-12-09

21 Pages5323 Words106 Views
MANAGEMENTACCOUNTING
Management Accounting at Tesco_1
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1TASK ..............................................................................................................................................1P.1 Defining management accounting and different types of MA systems that could be usedby Tesco..................................................................................................................................1P.2 Different methods used by Tesco for management accounting reporting.......................4TASK 2............................................................................................................................................5P.3 Production of income statements showing absorption costing and marginal costingtechniques...............................................................................................................................5TASK 3..........................................................................................................................................10P.4 Explaining advantages and disadvantages of different types of planning tool..............10TASK 4..........................................................................................................................................13P5. Adapting management accounting systems to respond to financial problems..............13CONCLUSION..............................................................................................................................15REFERENCES..............................................................................................................................16
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INTRODUCTIONThe performance of a business is reflected through accounting. There are two branches ofaccountancy, fiscal and management. Financial division deals with fiscal data and transactions.Management Accounting (MA) have wider scope, as it considers both monetary andadministrative information of business and aids the governance in significant decision making. Inpresented report a detailed analysis is done of management accounting systems, its relevance andapplications in the organisation and it is carried out on the basis of Tesco, a leading retail chainin retail sector in economy of UK. With these various reporting methods which can be used inenterprise is presented, income statements are prepared on marginal and absorption accountingtechnique. Different planning tools considerable in governance of firm, their advantages anddisadvantages are reported as well. TASK P.1 Defining management accounting and different types of MA systems that could be used byTesco.Management accounting:Management accounting is designed to produce financial data information for anenterprises and to supply the same to those who need it. It requires utilization of qualifiedinformation and skills for preparing accounting statements. This is done in such a manner thatcan assist management of Tesco for development of policies and in planning and controlling ofoperation of organisation. “Management accounting system are deployed for providing information that can be used bymanagements of an organisation for making quality decision.”“The term management accounting, observes, Board and Carmichael, covers all those serviceswhich can assist management and other departments in formation of policies and effectivecontrol of operations of the organisation.”This can be defined as a process of identification, measurement, summarization, analysisand communication of financial information along with significant data related with operationand administration of Tesco. All this information is critically evaluated by the management oforganisation in process of decision making so that proper steps and decision can be made forgrowth and administration of firm (Ward, 2012). This is also referred as cost accounting system.The main difference between financial and management accounting is that, the former one1
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provides information that assist decision of outsider stakeholder, while later one focus onproviding data and information for aiding mangers in decision making process. Functions of management accounting system:Provide data: data relevant for past progress and for making future forecast are providedby management accounting.Analysis and interpretation of data: meaningfully analyses data is done for effectiveplanning and decision making.Means of communication: forwarding plans upward, downward outwards throughorganisation.Facilitates control: helps in translation of given objectives into strategies and plans foreffective achievement of goals.Difference between management and financial accounting Basis Financial accounting Management accounting Period of Data evaluation After a definite time period At regular interval's Objective Supply information in form ofP&L account, incomestatements etc. for outsidestakeholders.It is designed to provideaccounting information forinternal use of managementPrecision Higher Lower Legal compulsion Compulsory for everybusiness. No need for every business toinstall this system.Different types of management accounting systems that can be applied in Tesco:management accounting system is a frame work in which various objectives, functionsand elements are incorporated and evaluated for decision making. These are referred asstandardized system which aims at analysis, identifying and communication of information. Cost accounting system2
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This system can be defined as cost ascertainment, related with a specific product oractivity. In this cost are allocated either through activity based or traditional form of system. Thisis defined as identification of all the expenses and allocating it to relevant product or activity. For activity based cost system, expenses related with specific operation is allocated tothat directly. Other expenses which are related with overall operations of organisation isallocated on proportionate basis to all departments or activities. In this cost is measured andrecorded individually to assist management in decisions related with inventory and control ofexpenses for specific area of business. Inventory management system:This is a system in which inventory orders are controlled and overseen. In simple wordsthis means that when and how much to order for raw material to ensure smooth productionactivity (Hilton and Platt, 2013). The components are stored and used so that production andsales of goods can be kept in a proper order. This system is related with keeping record ofinventories sold in stores of Tesco. It involves, determination of units of various productsrequired to be maintained in stock so that goods are readily available for sales in its stores.The function to be performed in this system are creation of purchase order, receiving,storing, allocating, adjusting and disposing the inventory. Also, functions related with salesorders, packaging and shipping of product from Tesco Outlet is performed. Job costing system this system focuses on allocation of manufacturing cost of individual componentproduced in Tesco. It is applied in situations where processes related with production of variousgoods, differs from one another. In this data and financial information related with cost ofparticular product or job is determined. This will help Tesco to provide information of particularjob to consumer under contract in which costs are refundable. This system assists organisation inaccurately executing cost per unit of a product and aids management in deciding the sales pricethat can be quoted for specific products.Price optimisation system3
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In this system mathematical analysis s applied in Tesco, that determines how consumerwill react to different prices for their products and services distributed through various channels.Main objective of Tesco is to maximise its operating profits and to determine prices.P.2 Different methods used by Tesco for management accounting reportingSome important tools and techniques used in management accounting of Tesco are asfollows:1.Accounts Receivable Ageing: It is a type of periodic report that separates company'saccounts receivable according to their length of time in an invoice that has beenoutstanding. It can help in indicating certain number of customers that are becomingcredit risk takers. This is a management tool and which reveals whether the companyshould keep doing business or not with consumers who are late payers.2.Job Cost Reports: Specific projects that are financed by Tesco are represented inthis type of reports with their expenses. Company is able to evaluate profitability ofjob because they generally match with an estimation of revenue. Tesco could putemphasis on additional efforts wherever needed instead of wasting time and moneyon jobs with low profit margins as this has helped it in identifying high earning areasof the business.3.Inventory and Manufacturing: If a physical inventory is maintained by Tesco orproduces products, it can make use managerial accounting reports for efficientutilization of manufacturing processes. 4.Cash Flow Analysis: In Tesco, this analysis is done to navigate movements of cashfrom one period to another. It is also used to find out reasons for cash balance andchanges between two periods. 5.Budgetary Control: Tesco uses this method to estimate and arrange future financialneeds according to an order. Financial performances of concerned business are alsocontrolled with this method. It helps company to direct business operations in adesired direction. 4
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