Management Accounting

This assignment delves into management accounting, covering cost analysis techniques, planning tools, and financial problem-solving. It examines the application of these concepts in the context of Tesco Plc and compares its approach to Marks & Spencer.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
P3 Techniques of cost analysis...................................................................................................1
P4 Advantage and disadvantage of planning tools.....................................................................3
P5 Compare organisation regarding to financial problem..........................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Management accounting is the process of preparing management reports and accounts
that provide accurate timely and financial and statistical information which is used by managers
regarding to decision making process (Agrawal and Cooper, 2017) . On the basis of these reports
management can control internal activities and achieving business goals and objectives. To
understand the concept of particular report selected organisation Tesco plc, which is a British
multinational groceries and general merchandise retailer. In the report consist of techniques of
cost analysis to prepare income statement. Furthermore, pros and cons of planning tools which
can use to budgetary control and management accounting system to sort out financial problem.
MAIN BODY
P3 Techniques of cost analysis
Absorption costing Method – The particular method known as managerial accounting
cost method where defined all costs which is related to producing of different products and it is
based on the generally accepted accounting principles. There are defined some direct costs which
is related to overhead cost and utility cost.
Marginal Costing Method – It is a costing technique where are including variable cost
to charged unit of cost. The fixed cost has been completely written off to the contribution. The
formula of the marginal cost = Direct material + Direct Labour + Direct expenses + Variable
expenses. It has been categorised into two cost first one fixed cost and second variable cost.
Average production Cost -
Direct Material 30000
Direct Labour 20000
Variable Production Overhead 12000
Fixed cost (10000+6000+5000) 21000
Total production cost 83000
Marginal Cost per unit
Direct Material 1.33
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Direct Labour 0.5
Variable production Overhead 0.3
Total Marginal cost per unit 2.13
(b)
Budgeted trading account (Absorption costing)
Sales $15000
Less- Cost of goods sold $8000
Gross Profit $7000
Less – Expenses
Selling expense $1000
Administration expense $500
Other Expenses $200
Net Profit $5300
Budgeted trading account (Marginal costing)
Sales $15000
Less – Variable cost of goods sold $4000
Production Contribution Margin $10000
Less – Variable non – manufacturing expenses
Variable selling expenses $1000
Variable Admin. Expenses $500
Other Variable expenses $200
Total Contribution expenses $8300
Less – Expenses
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Fixed Selling Expenses $800
Fixed admin expenses $1000
Other fixed expenses $500
Net profit $6000
(c) If Heinz go with production plan so getting good profit because company has produce goods
through absorption and marginal costing method. It is better to gain margin in specific way.
P4 Advantage and disadvantage of planning tools
Budget is predication of income and expenses over a particular period of time and it can
reflect a reading of future financial condition and goals. There are consisting of planned sales,
revenues, resource quantities, costs and different types of expenses.
Budgetary control is the process of control business activities as per the guidelines of
the budget. When company has been implement budget that time monitor and control every
business operations and direct to do work as per budget estimation. The manager can set their
goals and objectives to compare actual and budgeted aspects (Collis and Hussey, 2017) .
Cash budget –
The particular method present budgeting where all expenses and incomes are justified
according to new period. To prepare for this budget as a base take cash related activities and
consist of all other financial budget to prepare strategies and developing plan in reference to the
Tesco plc. With the help of particular budget Tesco plc has been analysis of each transaction
which will be happened into cash for current year forecasting. The particular budget can provide
detailed information regarding cash inflow and cash outflow
Advantage – The main advantage of the budget that it can help to analysis of each
transaction which can show cash inflow and cash outflow. Tesco plc planning about their profit
and loss account as well as balance sheet. It can help to coordinate and communicate of each
department to get optimal result on time.
Disadvantage – It is difficult to analyse of each department from starting so it may take
much more timing. It is considering as complex task which can not understand easily by every
one. There are not taking previous budget as a base so team analysing from starting and hamper
to employees regarding to collect information in reference to Tesco Plc. It may be more
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expensive and for prepare of budget need to engage much more people (McLaren, Appleyard
and Mitchell, 2016) .
Flexible budget –
In the budget has been recognised the difference in between fixed and variable cost in
respect to changes into results, turnover and other variable factors. A flexible budget is one that
takes account of a range of possible volumes. In the context of Tesco plc has been applied this
budget due to update financial information time to time. It can help to examine the impact of
financial decision taken by the analysis of the organization. In flexible budget includes fixed
cost, variable cost and budget model.
Advantage – The advantage of flexible budget that adjust of changing cost and profit
margins to better cost control. The manager time to time update current data and on the basis of
that data prepare effective strategy.
Disadvantage – It will take much more time and employee can hamper regarding to their
work because they can change their working style. In flexible budget difficult to predict future
expenses and undermining the value. These budgets believe on the hypothesis of cohesiveness
when costs may really behave in measure or discontinuous manner.
Fixed budget –
A Fixed budget is considering as financial plan which is newly update plan. The budget
also known as continuous budget which can not update in their accounting period and remain
same. The particular budget has been used for long term financial planning which can help to
manager regarding decision making process (Lachmann, Trapp and Trapp, 2017) . There is
required to more attention of manager because mostly information access through them.
Advantage – The advantage of the budget that continuity which can incorporates changes
from the previous period into the next. It is responsiveness that help to manage business
activities with changes until the whole budget period ends to take account.
Disadvantage – The particular budget can not yield a budget that is more achievable than
the traditional static budget, since the budget periods prior to the incremental month just added
are not revised. And it is similar to static budget which can not change on particular time and
apply repetitive strategy. It can not advisable during to origin of circumstances because it can not
constantly changes.
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P5 Compare organisation regarding to financial problem
Financial Problem – These are part of any organisation because in every business
finance is most important thing to survive business in effective manner. Manager of Tesco plc
can face the problem of money which become reason of stress as a result influence on the mental
health. Financial problem can create problem regarding to productivity and efficiency of the
company. As a result company can not get easily their goals and objectives. Tesco Plc also face
many financial problems due to affect various effective strategies. There are defined financial
problem in detailed -1. Spending more than earning – Company can not estimate about their future period of
time so it will create problem regarding to arrange money in effective manner. In
reference to Tesco Plc can estimate about their income and expenses on the basis of this
spend money. But company has not aware about their earning so as a result they can face
of low revenues comparison to their expenses (Boiral, 2016) .
2. Lack of manage accounts – The management has required to manage their accounts in
proper way because it can present all over financial information and situation of the
company. To prepare of accounts Tesco plc has been prepared effective strategies and
appoint accountants who can monitor every activities of business. But they are ignore and
can not record all data in books so as a result create problem of lack of mange accounting
books.
Management Accounting Approaches – These approaches part of accounting techniques
which can help to sort out financial problems in effective manner. There are defined about
techniques which can help to identify various financial problems and accounting approaches
applied on it -
 KPI – Key performance indicator is a financial tool which can measure performance of
the company in financial and non financial way. With the help of this tool manage track
various factors that can show impact on the growth of the company. In reference to Tesco
Plc applied this financial tool to measure different types elements that will be related to
financial and non financial form and identify financial problem to solve in effective
manner (Maas, Schaltegger and Crutzen, 2016) .
 Benchmarking – It can use to compare operations and performances of a company with
other company. It can help to increase performance in efficient manner and know reason
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why these financial issues are arisen. In reference to Tesco plc has been apply the
financial tool to identify problems regarding to expected results. It can show actual
performance of the company. There are taking other company for comparison than know
where is need to consider all financial problems.
 Financial Governance – It is part of financial tool which can help to sort out financial
problem in effective manner. Through KPI and Benchmarking company has been
identified different financial problem and financial governance can solve these problems.
In this tool prepare effective strategies and apply on organisation to over come these
financial problems. To reduce problem of spending more than earning, forecast of
revenues and expenses to achieve goals and objectives and invest money that place where
get much more result. To deduct problem of lack of manage accounts need to record all
transaction and manage money quantity (Granlund and Lukka, 2017).
Tesco Plc Marks & Spencer
Problem – The company have financial
problem to lack of manage accounting reports
where they can not properly record all
transaction and getting any errors regarding to
result.
There are considering problem which can
faced by company to spending more than
earning. It is retail sector company where they
can invest in different products that can not
provide benefits for long time.
Approach – To solve particular problem the
company has been applied KPI in order to
measure all type information in relation to
financial and non financial indicators.
For the particular financial problem there has
been applied benchmarking in order to get
minimum expected result.
System – The company has been applied cost
accounting system in order to maintain all
accounting reports with detailed information. It
can help to maintain all appropriate reports
(Whittington, 2016).
The company has been use price optimization
system to prepare price structure for every
products and services. It can help to know
perception of different customer as per their
requirement.
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CONCLUSION
As per the mentioned report it has been concluded that management accounting major
part of an organisation which can provide accounts report and books of the company to present
actual situation. These situation can help to take short term decision and invest money at suitable
place. Through cost accounting techniques such as marginal costing method and absorption
costing method prepare income statement to know gross profit and net profit of the company.
There are estimate income and expenses through various planning tools that will be helpful to
prepare budget these are cash budget, flexible budget and fixed budget. The company has been
compare performance from other organisation to reduce financial problems and apply in
effective manner.
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