Management Accounting Techniques for TATA Motors

The assignment details the use of management accounting principles at TATA Motors, highlighting the application of marginal and absorption costing techniques, scenario planning, and forecasting to inform short-term decisions and respond to financial issues. It emphasizes the significance of these tools in enhancing decision-making processes and promoting sustainability in operations.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1 ...........................................................................................................................................1
P1 Concept of management accounting and its essential requirements......................................1
P2 Different types of management accounting reports...............................................................4
M1...............................................................................................................................................5
D1................................................................................................................................................6
TASK 2............................................................................................................................................7
P3 Application of the absorption and marginal costing techniques to formulate income
statements....................................................................................................................................7
M2...............................................................................................................................................9
D2..............................................................................................................................................10
TASK 3..........................................................................................................................................10
P4 Advantages and disadvantages of various planning tools used for budgetary control........10
P5 Application of principles of management accounting to respond financial issues..............10
M3.............................................................................................................................................11
M4.............................................................................................................................................11
D3..............................................................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is important concept which includes the provisions of both
managerial and cost accounting. It includes the preparation of different accounts and reports
through application of such provisions for effective management of each and every department.
It provides accurate and timely financial and statistical information which is used by manager
further for operation of day to day functions. This will also considered as the process of
evaluating business costs and operations which improves the decision making power of internal
parties regarding accomplishment of business goals. It is different concept from financial
accounting which helps the organisation in formulation of annual reports. Such reports includes
the information about cash, sales revenue, accounts payable and receivable, raw materials,
outstanding debts etc. Such reports are used by external parties to take informed decisions
regarding their investments. TATA Motors provides more than 8.5 million branded vehicles in
all over the world (Armitage, Webb and Glynn, 2016) .
In the present report explain about, concept of management accounting, different types of
management accounting systems and their essential requirements, difference between
management and financial accounting, application of different kind of management accounting
reports to ascertain information and application of absorption and marginal costing concepts to
produce income statements. Also, advantages and disadvantages of different types of planning
tools used for budgetary control and contribution of management accounting systems to respond
financial problems.
TASK 1
P1 Concept of management accounting and its essential requirements
Management Accounting: It is the process which includes about evaluate,
interpretation, determination and presentation of accounting information attained by the manager

through application of management and cost accounting techniques. It is also known as
profession which supports in decision-making. It assist the management in formulation and
implementation of strategies in more effective and efficient manner. The different functions
which are served by management accounting like plan, control, monitor and enhancing the actual
performance of employees through improvement of their understanding about different
departmental functions.
Definitions of Management Accounting
According to IMA, Management Accounting is broad concept which assists in decision
making process, planning and performance of management systems which helps to bring
expertise regarding financial reporting which helps in formulation of effective organisational
strategies.
According to CIMA, Management accounting is includes identification, analysing,
interpretation and communication of important information through which plans are formulate
by the management for for optimum utilisation of resources to achieve their desired objectives.
Essential requirements of management accounting
Management Accounting helps the manager of TATA motors is to record the different
transactions and performance of various departments through use of different systems like
inventory management, job costing, price optimisation. Cost accounting etc. To fulfil their many
requirements need to prepare such different accounts. So, application of management accounting
provisions for consideration of their different requirements are mentioned below:
 Measurement of performance: One of the major requirement which is fulfilled through
use of information provided by different accounts is to measure the actual performance of
employees and their working efficiency. It is the process under which actual performance
are compared with standards to attain information about deviations which can be
removed through adoption of necessary steps (Ferreira, Moulang and Hendro, 2010).
 Assessment of risk: There are many management accounting systems which helps
identification of risks associated with business functions. It can be minimised through
adoption of effective policies.
 Allocation of resources: Through application of the provisions of management
accounting systems, it is easy to identify requirement of resources by different

departments in actual. It provides the opportunity regarding effective allocation of
resources which contributes in optimum utilisation of given resources.
Functions of management accounting
Management Accounting serves four major functions which are known as planning,
organising, controlling and decision making. It is used by the management of TATA motors to
make their business functions more effective to attain sustainability in their operations. So, it
principles of management accounting plays an important role in performance of such managerial
functions performed by manager of TATA motors are defined below:
 Planning: It is the process of formulating short and long term plans to achieve their end
results. It helps in preparation of budgets which assists in acquisition of resources and
their allocation to different departments as per need (Grabner and Moers, 2013).
 Organising: This includes about establishment of organisational structure and
distribution of the roles and responsibilities to employees as per their capabilities which
helps in achievement of goals.
 Controlling: One of the important step which helps in improvement of actual
performances. It refers as monitoring, measuring, analysing and correcting of deviations
in actual performances for achieve of desired results (Håkansson, Kraus and Lind, 2010).
 Decision-making: One of the important function which can be enhanced with the help
of management accounting provisions. It includes selection of best alternative from the
large number of choices. It provides the opportunity regarding effective performance of
day to day operations.
Difference between management and financial accounting
Management Accounting Financial Accounting
Made for internal parties Used by external stakeholders
Information is used for future planning Based on past records
It helps in measurement of financial and
operational performance of organisation
Through use of the provisions of this
accounting system only financial data's are
measured
Such reports only focus on some specific areas
of business
These reports provides the information about
the financial performance of overall

organisation
The scope of such systems is narrow as based
upon departments
Wide scope as it covers all transactions of
whole organisation
Different types of management accounting systems
There are many types of accounting systems which are used by the accountant of TATA
motors to improve the performance of different departments. Through this coordination among
different departmental functions is improved which ultimately improves the skills of employees.
Such different systems are defined below:
Job costing system: This system helpful in assigning of the cost to each and every
individual product. It is also considered as effective system which provides opportunity to keep
track upon their expenses. This system is more effective when the different kind of products are
manufactured by organisation. It helps in identification of the most profitable project and
reduction of cost through removal of unnecessary expenses (Kotas, 2014).
Price optimisation system: One of the major function of this system is to control the
prices of their different resources. It assists the management of organisation is to fix the price of
their different products at a time. One of the best method which is used by organisation to
understand about the fluctuation in demand through change in their pricing levels. It helps in
determination of their effective pricing policies as per the need of customers.
Inventory management system: This system is implemented in organisation for the
purpose of supervision and management of stock and assets in more effective and efficient
manner. It provides the opportunity regarding effective allocation of resources for their optimum
use to attain desired results. EOQ one of the important technique used under this system about
determination of their Re ordering level for elimination of wastes (Lavia López and Hiebl,
2014).
P2 Different types of management accounting reports
Reports: It is considered as a document which contains information n different forms
like narrative, graphic, tabular form etc. Such reports are prepared for specific period of time,
events, occurrences etc. which are presented in oral or written form. In organisational context,
such reports contains the information about day to day operations of organisation which cab be

further interpreted by the manager for ascertaining important conclusions. Different reports are
formulate by the accountant of TATA motors on the basis of different departments. It helps to
know the actual performance of departments and issues which are faced by them and reduces the
working capacities. On the basis of such issues new policies are formulate which guides
employee’s about completion of their tasks within stipulated period of time. It also contributes in
improvement of the decision making power of internal and external parties. For ex., annual
statement of TATA Motors includes income statement, balance sheet and cash flow statement
etc. These are different type of reports which provides the information about financial position,
availability of cash, asset and liabilities etc. which improves decision making external parties of
TATA Motors.
Different kind of management accounting reports
There are many types of reports are prepared by accountant of TATA Motors which
improves the internal strength of organisation. Provisions of different kind of reports are defined
below:
Accounts receivable ageing reports: These reports are most important for such
organisation which provides extended credits to their customers. It helps in effective
management of the amount of accounts receivable in more appropriate manner. To make reports
more sound need to proper segmentation of invoices of customers on the basis amount how long
they been owned. This helps the management of TATA Motors is to ascertain the issues which
are present in their collection process. It helps the organisation is to evaluate the need to tighten
their credit policies to recover the outstanding amount of debts within stipulated period of time to
effectively operate their day to day operations. It provides the opportunity regarding maintenance
of liquidity in organisation (Lennox, Francis and Wang, 2011).
Job cost reports: These reports are prepared by accountant of TATA Motors to identify
the costs and expenses which are associated with their different projects and jobs performed in
organisation. It helps in determination of the profitability attached with such project. One of the
major reason behind application of this system is to provide more efforts to most profitable
aspects to improve their number of revenue and reduction of efforts from waste areas which
helps in reduction of overall costs.
Inventory and manufacturing reports: Such reports are prepared by the accountant of
TATA motors to make their manufacturing and inventory process more effective and efficient.

Such report provides the information about labour cost, overhead cost and wastes related to
inventory. It used by the manager for comparison of the performance of different assembly lines
and identification of the new opportunities which are exploited by such departments and
employee’s.
Importance of management accounting reports
 Reduction in amount of loss: Different kind of reports provides the information
regarding performance of different departments. It helps in preparation of budgets which
directs the employees in performance of their functions in more appropriate manner. It
helps in reduction of amount of loss and earning of large number of profits.
 Improvement of financial return: There is huge role of different reports in enhancing
the decision making power of manager of organisation. It provides the opportunity to
improve the quality of their products through adoption of effective approaches. It helps to
improve financial returns.
M1
There are many benefits which are associated with management accounting systems
which are used by accountant of TATA Motors to improve their performances. Benefits of such
different kind of systems are defined below:
Job costing system
 This will provides the opportunity regarding removal of duplication of activities and
efforts
 This will provides the opportunity regarding assessment of the quality of work which is
provide by organisation
 Helps in determination of all types of costs associated with the manufacturing process
(Morales and Lambert, 2013) .
Price optimisation system
 Helps in determination of the buying behaviour of customers at different pricing levels
 Provides opportunity regarding maximisation of their profits through selection of best
prices

D1
There is relation is established between the organisational process and management
accounting reporting which helps in completion of tasks in more effective manner. Such relation
between different type of reports and organisational process is defined below:
Type of reporting Integration with organisational process
Accounts receivable ageing reports Integration between the functions of this report
with organisation process is ascertained on the
basis of timely collection of outstanding
amount and make changes in their credit
policies accordingly for attainment of
flexibility and accuracy
Job cost reports Integration is seen between organisational
process and such reports is that it helps in
accomplishment of their cost objectives and
formulation of effective pricing strategies
TASK 2
P3 Application of the absorption and marginal costing techniques to formulate income
statements
Cost: It is incurred by organisation while producing some product. This includes amount
paid off by organisation during production process of product. The different aspects whose
monetary value is included in cost are resources, efforts, time, opportunity foregone, risks
incurred etc. All such cost is incurred by organisation to carry out their business operations
without any interruptions and accomplish goals within given period of time. So, it is the
obligation upon the accountant is to effectively identify the costs according to which funds are
allocate to different departments so, not faced the situation of shortage.
TATA Motors is big brand which provides their vehicles globally. At present,
organisation has large market share and good customer base whom are loyal towards the brand.
To attract the large number of individuals need to make changes in their vehicles and add new

features which helps to attain competitiveness in their operations. In this regard, manager of
organisation has the duty is to divide the market on the basis of buying behaviour and purchasing
power of customers. This helps to bring changes in their vehicles according to need of different
segments helps to maximise their satisfaction level. So, for attraction of middle class customers
need to focus on costing factor. It helps in reduction of the different unnecessary costs to fix their
prices more affordable for such segment of customers. It has positive impact upon the
profitability of organisation. There are two different costing techniques helps in identification of
costs includes Absorption and Marginal costing methods (Otley and Emmanuel, 2013).
Absorption costing: As per this method all the manufacturing costs are charged to the
units which are produced by organisation. This method of costing also known as full costing
method where both fixed and variable costs are apportioned to cost centres. It helps in valuation
of the inventory. The different items which included while calculating cost are direct material,
direct labour and both fixed and variable overhead cost. It helps in making long term decisions.
Marginal costing: This method only uses variable costs for calculation of costs. As per
the provisions of this method, only variable costs are charged to cost units but fixed costs are
totally write-off. The major characteristics of marginal costing includes determination of price,
valuation of stock, segregation of cost into fixed and variable and ascertainment of the
profitability (Zamora, 2011).
Difference between Absorption and Marginal costing
Comparison Marginal costing Absorption costing
Meaning It is considered as decision
making technique which helps
in determination of product
cost.
This includes the process
where all costs are apportioned
to cost centres for
identification of total cost of
production
Cost recognition Only variable costs are
recognised while fixed costs
are totally write off against
contribution
As per this method, both fixed
and variable costs are
recognised as product cost
Classification of overheads Overheads are classified as Here overheads are classified

fixed and variable as production, administration
and selling and distribution
Profitability Profit volume ratio is used to
ascertain the profitability
Due the recognition of fixed
cost, profitability of
organisation is effected
Reporting purpose This prepared for external
reporting
This is prepared for internal
reporting
Calculation for total number of units completed and packed in the period
a): Number of products
Production during the period 3000
Sales for the period 2500
Closing stock of unpacked products 400
Closing stock of packed products 100
Products completed and packed during the time (2500+100) 2600
b):
Budgeted production and trading account for the period (Absorption costing)
Particular Amount
Sales (2500*200) 500000
Direct material (3000*50) 150000
Direct labour
Machine department ( 3000/100*5*4) 600
Finishing Department ( 3000/20 *18) 2700
Labour dispatch department 2600/20*5 650
Material packed boxes (2600*6) 15600
Total direct labour 19550

Fixed overheads
Machine department( 3000/100*5*6) 900
Finishing department( 3000/20*4) 600
Dispatch department(2600*1) 2600
Total fixed costs 4100
Total cost of production 23650
Less:
Closing stock of work in progress ( Unpacked products) 20640
Manufacturing costs of products completed 3010
Less:
Closing stock of completed products 115.7
Manufacturing cost of sales 2894.3
Gross profit 497105.7
Budgeted production and trading account for the period
(Marginal costing)
Sales (2500*200) 500000
Direct material 150000
Direct labour
Machine department ( 3000/100*5*4) 600
Finishing Department ( 3000/20 *18) 2700
Labour dispatch department 2600/20*5 650
Material packed boxes (2600*6) 15600
Total cost of production 19550
Less:
Closing stock of work in progress ( Unpacked products) 20440
-890
Less: Closing stock of completed products -34.2307692308
Variable production cost of sales -855.7692307692
Contribution 499144.230769231
Less: Fixed costs 4100

Gross profit 495044.230769231
M2
There is huge importance of management accounting techniques which provides the
opportunity regarding development of effective financial reporting documents. It provides the
opportunity to the managers of TATA motors is to effectively assess about their financial
position. On the basis of such collected information manager of organisation enhance their
decision making about investment planning and identification of the most profitable project. It is
observed from the above analysis of income statements is that organisation have sufficient
amount of funds which helps to make their vehicles more efficient from their competitors. So, it
is important to keep record of past information to take effective decisions (Tucker and Lowe,
2014) .
D2
The two different techniques are used for calculation of profit and loss of TATA Motors
which are known as marginal and absorption costing. The profits which is ascertained by
organisation through application of the provisions of both these method is different from each
other. Through use of absorption costing method the amount of profit is ascertained as 497105.7
and through adoption of marginal costing method the profit is ascertained of 495044.230769231.
Such difference in the amount of profit is arise due to non consideration of fixed assets in
Absorption costing method (Yahya-Zadeh, 2012).
TASK 3
P4 Advantages and disadvantages of various planning tools used for budgetary control

Budget: It generally concern with plan that prepare for specific time period and it provide
several informations about different functions of organisation. In this consider the future time
and provide directions as well as guidelines to their employees about particular aims or
objectives in an appropriate manner. It included finance budgets and operating budgets that
support in allocating funds among several activities for managing available financial resources in
an appropriate manner.
Budgetary control: This is an important and effective technique of budgeting which is
very beneficial for TATA Motors. They can perform their functions or activities in an effective
ways such as planning, coordination and analysis. In this also considered the budget centre where
budgets are categorised among different sections. These are supportive in providing number of
opportunities to the manager of TATA motors in increasing sales volumes and generate more
profits.
Process of budgetary control Consultation with managers: This is an important phase where managers have to consult
with other manager of different departments. It will support in making effective and
favourable decisions regarding budget of TATA motors.
 Effective assumption: It is defined the abilities and capabilities of TATA motors that
how they are interpreting informations that are getting from discussions with other
managers. Better assumptions are beneficial in making contingent provisions so that
company can be protected from future losses.
 Fixing of corporation- al information regarding budgets : This involves procedure of
collecting data in context to different departments so that objectives of corporation could
be attained.
 Measuring actual data : It is important for workers of Tata Motors to determine that
they collected data is correct or not. After that modifications would be done as per the
requirement.
 Review analysis : This is considered as final stage wherein each and every process
should be examined once so that it can be decided that work is in right track.

Planning tools : There are many tools that can be used for planning in context to
budgets. Tata Motors should focus on below written methods and adopt the same in order to
design a good business plan.
Forecasting tool : This is nothing but the technique of predicting things in order to
forecast about things of upcoming days. For this, referred venture have to consider previous
records and facts so that correct decision could be taken.
Advantages
 From past figures, company receives an idea that what they need to do.
 It is easy to implement.
 It needs skilled worker.
Disadvantage
 It is not always correct.
 It is expensive in nature.
 Time taking
Scenario tools : Herein alternative methods or techniques could be applied by Tata
Motors in accordance to the existing situation.
Advantages
 Offers chance to increase the planning as well as whole management.
 Could be modified in specific case.
 Helps in making suitable judgement.
Disadvantages
 It also takes more time.
 Sometimes correct data is not acquired from the same.
 Employers get confused.
Different planning tools
Standard costing: This method of costing helps in determination of the cost which is
incurred while producing the good and service. It helps in setting of the standard cost on the
basis of actual cost. They have the aim is to achieve such target to earn adequate amount of
profit.
Advantages
 Helps in fixing of standard cost which directs he manager in performance of functions
2

 Improves earning
Disadvantages
 Decided on the basis of historical cost not remains same every time.
Budgets: It is effective tool which is formulate for the purpose of direction to the
employees in completion of their tasks as per the standards and within stipulated period of time.
It used to forecast about the future operation in accomplishment of desired objectives.
Advantages
 Helps to direct employees
 Accomplishment of objectives within stipulated period of time.
Disadvantages
 Budgets are based on estimation does not provide accurate information
P5 Application of principles of management accounting to respond financial issues
TATA Motors is multinational organisation which manufactures different kind of
vehicles as per the requirements of different type of market segments. This organisation is
already have very strong brand image in market and famous for quality and innovative design of
their different vehicles. Still there are many competitors in market which affects their sales figure
and profit generation capacity like Toyota, Nissan etc. Due to which there are many financial
issues are arise which has adverse impact upon their working efficiency.
Management Accounting is important concept which provides different tools and
techniques which helps to overcome from financial problems. This can be used by the
management of TATA Motors set standards which directs employees in their performances.
Such tools are defined below:
Key performance Indicators: One of the important tool which helps in identification of
actual issues. This can be classified into two type like financial and non financial KPI. Financial
KPI includes financial statements which provides the information about income and expenditures
and issues related to that. Non-financial KPI helps in identification issues present between
employees and management. It cab be removed through preparation of effective strategies.
Benchmarking: This tool is used to set the targets for employees which they need to
achieve from performance of their different functions. Such targets should be clearly defied at
early stage and also provide adequate direction in this regard (van der Steen, 2011).
3

TATA Motors Ltd. Toyota Plc
TATA Motors adopts financial KPI as there
are many issues are identified regarding funds
at different regions. It helps in determination of
issues in more adequate period of time.
In Toyota Plc main issues are related to
behaviour of employees. In this regard,
management need to use non financial KPI
which helps to build good relation between the
employees and management.
There is lack of direction is ascertained in the
performance of employees. To remove such
issues need to adopt the tool of benchmarking
which provides standards of working.
Toyota also have their business operations in
many countries. To removes the issue
fulfilment of different regulation need to adopt
the tool of financial governance. It helps to
accomplish their objectives.
M3
The main function of planning tool is to forecast about the future operations which
provides the opportunity to build effective budgets which provides provides proper guide to
employee’s in completion of their tasks (Papaspyropoulos and et. al., 2012). Different planning
tools which are used by the management of TATA Motors for preparing budgets includes
scenario, forecasting etc.
M4
Management accounting principles provides different kind of tools and techniques which
provides the opportunity to respond financial issues. Such tools are named as KPI, financial
governance, Benchmarking etc. These approaches helps to provide standards and have
continuous monitor over performances. It helps in developing their existing skills.
D3
There many financial issues are arises in organisation while providing their functions.
Such issues affects the working capacity of organisation. There is huge importance of planning
tools to respond financial issues which are define below:
4

 Scenario tool: It helps in determination of risks which are associated with their working
in advance. It helps in preparation of contingencies provisions which to tackle future risks
effectively (Renz, 2016).
 Forecasting tool: This tool helps in setting of standards which guides employees to
improve their performances and finding out of deviations.
CONCLUSION
It has been concluded from the above report that manager of TATA motors used the
provisions of managerial and costing techniques to collect important information which assist in
performance of day to day functions through short term decision-makings. It provides the
opportunity regarding identification of the issues and formulation of strategies which helps to
attain sustainability in their operations. Such accounts are used by internal parties which
contributes in improvement of their decision making processes. Marginal and absorption are two
effective costing techniques which helps in preparation of income statements. There are many
planning tools like forecasting, scenario etc. which provides the opportunity for effective control
over budgets. Such accounting systems also helps the manager of TATA motors is respond
financial issues effectively through application of the tools like KPI, Benchmarking etc.
5

REFERENCES
Books and Journals
(Armitage, Webb and Glynn, 2016) (Ferreira, Moulang and Hendro, 2010)(Grabner and Moers,
2013)(Håkansson, Kraus and Lind, 2010)(Kotas, 2014)(Lavia López and Hiebl, 2014)(Lennox,
6