Management Accounting and its Importance in an Organization

This document provides an introduction to accounting and its importance in managing the financial resources of a company. It explains the essential requirements of different types of management accounting systems and discusses the different methods used for management accounting reporting. It also explores the advantages and disadvantages of planning tools used for budgetary control in Tata Motors.

MANAGEMENT
ACCOUNTING

INTRODUCTION
Accounting is defines as the procedure of managing the financial resources of a company.
It assists manager in controlling the flow of finance. Accounting method also help business
entity in maintaining the financial stability and ensuring effective as well as efficient utilization
of resources. It includes the several activities such as recording of tractions, and other monetary
records. Accounting statement is used by the management team in an organisation for identifying
the financial performance of the company and recognizing the area of improvement. Financial
records also assist manager in identifying the income earned and expenses incurred during the
particular financial year. Accounting also assists management team in analyzing several financial
issues and finding the appropriate solution for the same.
The purpose of the report is to develop the understanding about the accounting system
and analysing its importance in an organization. It also has focus on highlighting the major issues
in accounting problems and identifying the appropriate solution for the same in context of Tata
motor company.
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TASK 1
P.1.Explain management accounting and essential requirements of different types of
management accounting system
Management accounting is the approach which defines about preparing a proper
management reports in the organisation in order to management of all financial accounting
information in case of reduction of costing in business efficiently. Financial accounting refer to
the preparation of annual reports majorly for external stakeholders and management accounting
is a monthly reports which is made of internal performance assessment of company.
Management accounting reports are prepared by internal management team and accounting
executives for gaining financial reports in relevant form (Smith, Brännström and Jansson, 2015).
These reports are typically showed the amount of available in cash, sales revenue generated,
amount orders in hands, state of accounts payable and accounts receivable, outstanding debts and
raw materials etc. management accounting is most necessary for Tata organisational manager
which assist them to making proper decision in the company in respect to minimise the costing
and expenses of the company in the industry efficiently.
Cost accounting system: Cost accounting system is also one of the effective management
accounting approach in order to making proper management of monetary terms of the company
in the industry sufficiently. These are in tow form in the business which is job order costing and
process costing, both costing systems are being utilised by Tata company's manager in terms of
reducing several functionalities and manufacturing costing in the company in relevant manner.
Moreover, the cost accounting systems are being utilised by its manager in terms of proper
recording of production activities at the workplace efficiently (Kumarasiri and Jubb, 2016). This
could be used by organisational manager in order to appropriate tracking a raw material as they
go through the production stages of various car products at the manufacturing plant in the firm
effectively. When in the business, raw materials are used for manufacturing input then
immediately record the use of the materials by crediting the raw materials accounts for debiting
the goods in process accounts efficiently. This is also useful approach for Tata auto-mobile
organisation in order to recording of costing of each manufacturing activities which are being
done at the plant efficiently. This costing system can reduce the operational costing of the
company which is running in their production plant in the industry sufficiently.
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Job costing system: This is also crucial approach of management accounting costing
system by which could assist Tata company's manager to keep track all activities and each job of
the company which is being operated and keep record each job expenses in the company
properly. This is used for those manufacturing companies in the industry which is usually
measured by the numbers of completed job in the industry in relevant manner (Budding, Grossi
and Tagesson, 2014). The each job costing is recorded by management accounting officer of the
company on a ledger throughout the entire job process and are included to the ultimate balance
statement, when preparing for job costing and batch statements at the workplace in effective
manner. There are numbers of jobs are being done while manufacturing works are being done in
several production phases of auto case making process, so varied of activities must be recorded
by its manager at the workplace and as per gathered data, they need to assess the costing of
production process each job effectively, and with the help of tools and techniques of job costing
system, the manager of Tata organisation could reduce the job costing at the workplace. This
approach must give benefits for the business in effective way, because they can reduce costing of
each job as per job costing system mechanisms process effectively and raise the profitability of
the company in the industry in proper way.
Process costing system: This is also one of the appropriate management accounting
costing system, which could be used for the firm's manager in respect to making proper
assessment of process which is being done while manufacturing activities are being done in the
plant effectively. This is an approach which is mostly used by manufacturing companies in the
world effectively and they can accumulate costs while large number of identical units are being
produced at the workplace properly (Haskin, 2010). In such circumstances, it is mostly useful for
the company in order to accumulate costing at an aggregate level for a large batch of production
in order to making allocate them to the individual units has been produces in the plant relevantly.
Various types of such activities are being done in manufacturing plant of the company and its
manager require to utilisation of several kinds of process costing system in terms of assessment
of process costing which is being produced in the company at mass level and as per its tool and
techniques, its manager can reduce the costing of manufacturing phase of the firm appropriately.
This might be also most beneficial for the business in respect to reducing the cost of production
and other several expenses in the firm sufficiently. Some costing occurs in the business such as
Direct material costs, Direct labour costs and overhead costs etc. all these costing might be
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reduced at the workplace in effective form in case of using this costing system in the firm
effectively.
P.2. Explain different method used for management accounting reporting
Management accounting reporting is also one of the crucial part of accounting system in
order to making proper assessment of organisation's performance and this is also assists company
to making use of some accounting period which is needed most. This is depends on the types of
quality of the project which is being implemented on the business process in order to completion
of various activities at the workplace efficiently (McLellan and Moustafa, 2011). Tata company's
manager may need to prepare management accounting reporting at the workplace as per,
projection requirements for reports quarterly, monthly and weekly at the workplace properly.
There are different kinds of management accounting techniques are presented here, which might
be utilised by company's manager in terms of proper planning for their various projections which
is being operated upon the business sufficiently.
Budget reporting: Budget reporting is also necessary terms for Tata organisation in order
to proper planning for their budget on each project which occurs in the business in future
effectively. Budget reporting could be utilised by Tata company's manager in effectively assess]
of the company performance and also analyse the departmental performances efficiently, it could
assist the firm's manger in case of proper controlling of costing on all expenses on various
projections in the efficiently. The company's manager prepare this budget on the basis on the
actual expenses form prior years properly. This must be in accurate form in the future in order to
trim various costs of the company in the industry sufficiently (Roslender and Hart, 2010).
Moreover, budget reporting also making use of some customers in case of generating more
revenue from the market in case of generating more revenue from the market in sufficient form,
so that efficient development could be gained in more relevant form. Budgeting reporting of
sales data, fixed data collection of the data and net worth of the entire organisation in their
common section of budget. This is helpful for the company in order to meeting employees of
specific financial goals of the business in the industry sufficiently. This is totally made on
estimation at the workplace, so its manager need to make more efforts to meet to budget
expected goals within given time period efficiently.
Job costing reports: This is also another essential management accounting reporting
approaches at the workplace which could be used by its manager in case of accumulating various
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costs of materials, labour and overhead for particular job in the company in relevant form.
However, this method is an excellent tool for tracing particular costing to separated jobs ad
assessing them to see if the costs could be reduced in later jobs in the industry in relevant form.
Job costing approach is used by Tata organisational manager in order to accumulating small level
of production in the company, job costing reporting is inclusion of several kinds of costing at the
workplace in effective form, so that sufficient outcomes could be gain effectively (Dekker,
2016). Job costing includes materials costing, variety of raw materials are being utilised in the
company in their auto-mobile production process and they need various components for
producing it and some labour and overhead costs are also being included in case of preparation
of job costing in the business in relevant ways. The organisational manager could use of this
reporting process at the workplace in order to examining of each jobs which is being done in the
company in proper manner.
Financial reports: This is also one of the effective reporting system which could be used
by accounting manager of Tata company in order to assessment of various financial transaction
of the company within specific time period efficiently. Financial reports assist the business
manager in case of utilisation of proper financial information which assist them to ascertain the
company's performance in give time period properly (Youssef, 2013). The business accounting
officer need to proper profit and loss statements of the firm in a specific time period, which gives
proper information about how mush company has been earned ad in which section of the
company is giving negative performance in the company in sufficient form. The company's final
financial report, balance sheet defines about how much Tata company has been earned during the
year and how much they have gained losses in the company effectively. This reporting useful for
Tata organisational manager in terms of determination of profit and loss section of the business
in the industry and as per its information, manager could make proper decision about to making
improvement in such areas of business which is giving negative performance in the firm
effectively.
TASK 2
P.3. Income statements using marginal and absorption costing methodologies
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TABLE: 1. Marginal costing techniques in Tata motors company
TABLE 2. Absorption costing techniques in Tata motors company
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Both techniques are most appropriate for Tata organisation in case of proper examining
of profitability of the business in the industry in relevant form. Marginal costing includes some
effective methods which includes some direct material costs in its calculation process in the
company in more relevant form (Ahmad, 2012). There are numbers of issues are being arisen in
the company regarding to its cost increment in its several production process from the last few
years. From the above analysis of costing by marginal costing, there are numerous types of
costing has been accumulated by its accounting manager effectively. Such direct costs are direct
material costs, Direct labour costs etc. which assist the manager to analyse proper direct costing
of the company while manufacturing process in being done in the business in appropriate form.
Moreover, marginal costing approach of Tata organisation assist the same costing in the
company such as machining depreciation and finishing department and dispatch department
costing has been included in terms of proper assessment of costing at the workplace which has
been occurred while manufacturing processes are being done in the company (Zimmerman and
Yahya-Zadeh, 2011). Apart from it, absorption costing approach is also useful for Tata business
in order to proper analysis of costing by its manager in order to appropriate assessment of
profitability of the business effectively. Absorption costing approach refer to involvement of
fixed costs in its accounting of costing in the business sufficiently. The costing method also
defines about management accounting costing process which review about all expenses and
costing related with the manufacturing costs in specific manner in order to getting proper
analysis of outcomes in the business. A product might be absorb in a range of fixed and variable
costing in the industry sufficiently (Chenhall, 2012). There are some essential costing are
included in the absorption costing approach, such as direct materials costing, direct labour
costing and variable manufacturing overhearing costing in terms of proper examination of
costing within Tata manufacturing plants by its manager efficiently. Hence, it could be said that,
both costing approaches could be used by its accounting manager in terms of proper assessment
of its profitability and also recognise some areas in which organisation is giving negative
performance in the industry in more relevant ways. It can state that, absorption costing must be
used by its accounting manager in respect to appropriate assessment of its marginal costing in the
company so that, efficient profitability are could be find out within the business environment
efficiently.
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P.4. Explain the advantage and disadvantages of different types of planning tools used for
budgetary control in Tata motors
This is also most necessary part of the business in case of preparation of proper budgeting
for Tata Motors company in order to proper distribution of funds of its various parts in the
company in sufficient form in case of running of its varied of function in the industry in relevant
manner (Adams and Drtina, 2010).
Internal rate of return: This is also useful terms for Tata Motors company in order to
preparation of capital budgeting at the workplace effectively. This approach could be used by
Tata company junior management accountant in order to making forecast of profitability on its
potential investments of the company on given time period efficiently (Abdel-Kader, ed., 2011).
This is a discount rate of the company, that represent the net present value(NPV) of all cash
flows of the company which has been made on specific projection of the company appropriately.
Advantages:
 Internal rate of return considers the times value of the money in the business on the
annual cash inflow is equal or unequal in the firm effectively.
 This budget approach is totally easy to understand values in the business properly so, that
could effectively present in the company. This is helpful for the organisation in respect to maximise the profitability of the business
in the industry in relevant manner (Hammad, Jusoh and Yen Nee Oon, 2010).
Disadvantages:
 This approach defines about earning and make reinvestment at the internal rate of return
for the remaining life of the project is essential for the project of company and in this
case, if the average rate of return gain by the firm in not closed to the internal rate of
return, then the business could not get proper profitability in the business
efficiently(Cokins, 2013).
 It has tedious calculation method which is very lengthy approach and time consuming
system for its business manager.
Zero base budgeting: This is also necessary for Tata Motors company, which defines
that, zero base budgeting start in the firm from zero base and it is method of budgeting by which
its manager need to all expenses must be justified for each new period of the business. This
budget begins from the zero base in the business sufficiently.
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Advantages:
 With the help of zero base budgeting in the company, its manager can save the inefficient
costing which occurs in its operational level in the firm effectively (Hopper and Bui,
2016). The junior management account of the company can easily review about clear picture to
the extent of finance present in the business and also helps to raise finance in the
company sufficiently.
Disadvantages:
 In case of Tata business, its manager ned to make large number of decision packages
within the firm in this budgeting and it includes variety of expenses in the business
appropriately (France, 2010).
 Various kinds of expertise is needed for preparation of Zero base budgeting at the
workplace effectively, which is required to high expenses in the business sufficiently.
P5 Management accounting system for the resolution of financial problems.
Lean Accounting- lean accounting refers that the general changes in the company for
controlling, measurement and management process. The lean accounting is the business
management tools that focus on reducing waste from production process. The purpose of lean
accounting is to support lean enterprise as a business strategy. It seeks to move form traditional
accounting method to a system that measure and motivate excellent business practice in a lean
enterprise. Lean accounting refers that reducing extra cost of goods and services witch is
provided to customers. The lean accounting describe that any organization they are used to
reduced the unnecessary row material to the products and removing the waste material from the
products. This process benefited for organization because they control cost of the products and it
help for avoiding problems of the products.
Process costing- Process costing is the method for collecting and assigning
manufacturing cost of the products. Process costing is type of operation costing which is use for
maintain the products manufacturing cost. Process costing use where the mass production of
similar products. The cost of each products is assumed to be the same as the cost of the other
products. The process costing involve that process where the process are under manufacturing
period. Process costing is the only reasonable approach to determining product cost many
industries . Is uses most of the same journal entries found in a job costing environment, so there
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is no need to restructure the chart of account to any significant degree , this make it easy to job
costing system from a process costing one if the need arises, or to adopt hybrid approach that
uses portion of both system.
Through put accounting system- The through accounting (TA) refers that it is simple
accounting based system. Through put accounting system makes growth- driven management
and decision making system that understandable for all peoples. This method is most accurate
and most fast in using. This is provide accurate financial problems and solve them. The through
put accounting system is based on through put analyzing. Through refers as the rate of a
producing goals units and translate as a revenue or sales minus totally variable expenses in
accounting terms. Some of the important points through put analysis needed to including:
 Manage and make decision in a growth oriented and ToC way.
 Allow faster reporting and near to real-time figure based management.
 Helping of people to understand the basics of accounting.
Transfer Pricing- The transfer pricing means the price changing by one company to
another company according to the organization. This can include sales or products. Transfer
pricing is important for assessing the performance of business units of multinational and the
mangers of those units. In the simple way transfer pricing is the process who adopts every
company, those companies are changes products price according to there strategies. The
multinational companies who adopts this process they have to paying tax for this process
regarding.
Conclusion
From the above concluded that, management accounting is the most appropriate system
that assist the SME in managing its critical business. Management accounting is the approach
which defines about preparing a proper management reports in the organisation in order to
management of all financial accounting information in case of reduction of costing in business
efficiently. Further it is concluded that This is also useful terms for Tata Motors company in
order to preparation of capital budgeting at the workplace effectively. lean accounting refers that
the general changes in the company for controlling, measurement and management process. The
lean accounting is the business management tools that focus on reducing waste from production
process. Financial reporting is also one of the effective reporting system which could be used by
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accounting manager of Tata company in order to assessment of various financial transaction of
the company within specific time period efficiently
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REFERENCES
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