Management Accounting and its Essential Requirements

Management
Accounting

Table of Contents
INTRODUCTION
TASK 1
P1 Management accounting and essential requirements of its systems.......................... 1
P2 Different methods used for management accounting reporting................................ 4
M1 Importance of MAS ..................................................................................................4
D1 Integration between MAS and MA reports...............................................................4
TASK 2
P3 Calculation of cost using different costing techniques............................................. 5
M2 Techniques to prepare income statements................................................................6
TASK 3
P4 Advantages and disadvantages of different planning tool used for budgetary control.. 10
TASK 4........................................................................................................................ 13
P5 Comparison of the way in which organisations are adapting management accounting
Systems........................................................................................................................ 15
M4 MA to respond financial problems.........................................................................16
D3 Role of planning tools to solve financial issues......................................................17
CONCLUSION
REFERENCES

Introduction-
In this report management accounting is discussed. It is very essential part of on organization.
Management accounting is related to financial data and records which help in knowing financial
health of the company. Main purpose of management accounting is to help organization in
financial decision making. Accounting gathers financial information which helps management to
plan, control and evaluate the process and strategy of business. In this report, Tesco is analyzed.
It is a British multinational grocery company. It is a public limited company. Headquarter of the
company is in Garden city, England. Company is related to retail industry. Founder of the
company is Jack Cohlen. It was established in 1919. Company has around 7005 shops till 2020.
Company is globally expanded in early 1990’s, with operations in 11 countries in the world. It is
listed on London stock exchange. Company has market capitalization of approx £18.1 billion. It
is 28th largest company with primary listing on NSE.
Part-1
P1- Explain Management accounting and requirement of different types of management
accounting
Management accounting is an important part of organization it provides financial information to
the internal management of the organization. It helps in decision making and performance
improvement. Success in the future of the business is identifies by management accounting.
Managerial accounting has many facets which include costing of product, budgeting, forecasting
and financial analysis. Accounting system helps organization in tracking expenses and
production cost of goods and services. Traditionally, management accounting is used to track
costs using job order and process costing methods.
There are different types of management accounting systems. It includes cost accounting, lean
accounting, throughput accounting and transfer pricing. In cost accounting all the production cost
is undertaken. Production cost is further divided into two parts which are fixed cost and variable
cost. Fixed cost does not change itself. On the other hand variable costs change itself with time
such as changes in prices of raw material. In the cost accounting addition of both the costs are
undertaken in order to know about the production cost. Lean accounting system focuses on

reducing the cost or expenses by removing waste. It is a strategy which is focused on cost
cutting. It believes in removing extra cost which it detects as waste and cut it from the system.
Throughput accounting is not an accounting process. It is basically focused on identifying the
constraints in the production system. Constraints caused due to lack of material and labor. This
accounting type only focused on reducing this constraint in order to increase the production
volume. Transfer pricing determines the cost of goods at every department.
P2- Types of management accounting reporting-
There are various reports generated in organization because it helps in taking many critical
decisions. These decisions are depends upon the authenticity of the report. These reports are
prepared by financial experts and after that managers analyze this report and convert it into
useful information for organization.
Budget report- It is very important in measuring the performance of the company. As tesco is
large organization so budget is made department wise. Budget report is made on the basis of
historical data. Budget is a future prediction of the expenses and income. It is not accurate but
gives insight to the organization that what is needed to be done. It is useful in guiding managers
about incentives of employees, cost cutting and negotiation with suppliers etc.
Account receivable aging report- When organization want to extends its credit, then this report is
required. This report allows managers to find the defaulters and identifies the problem in
collection process. In case company finds many defaulters then it should implement its credit
policies. Cash flow is very important for operations of company. Bad debt can create problems in
day to day activities.
Cost accounting Reports- Cost accounting report gives information about overall production cost
which includes material, labor, overheads etc. By this report, managers can identify the
production cost and revenue. Profit margins can be calculated and decisions can be taken
accordingly. Company can increase the price of the products if there are lower profit margins or
can be focused on cost cutting.

Performance report- By this report manager can review the performance of the company as
whole. In Tesco, performance reports are prepared according to the department wise. Managers
can take strategic decisions by using this report.
Other reports- Apart from these reports many reports are prepared by the organization such as
information report, project report and competitor analysis report. These are prepared by
professionals.
M1- benefits and applications of accounting system -
Time and cost saving- As it is known that bookkeeping is a tough task. In large organization
there are plenty of transactions which are needed to be recorded. With the help of accounting
system it is easy to record the transactions. It is very quick and takes less time. Hence, company
does not need extra accountants for bookkeeping. It saves cost of the company as it is a
replacement of employee.
Financial visibility- Stakeholders can easily track the performance of the company. Revenue and
expenses can be easily tracked by management. Company can also track the profits and losses.
With help of software company can generate the cash flow forecasts. Financial information can
be viewed with the help of dashboard.
Error reduction- When transactions or other financial calculation is done manually then there is
high risk or errors. Accounting system helps in automated calculation. It can detect the duplicate
data. Management accountants do not need to focus on only correcting the they can use their
skills in other tasks also.
Assets and inventory management- Inventory and assets can be managed in the proper way by
using accounting system. Software helps in calculating the depreciation associated with the
assets and can track the inventory cost. So, that company can improve the management of assets
and inventory.
Decision-making- With the help of accurate financial reports, shareholders can take decisions for
the organization. It can be find out that which process is costly for the organization and it can
also be detected that which cost should be reduced. Accounting reports also decide that company
is ready for investment, employee hiring, marketing strategies and expansion or not.

Flexibility- Financial information can be tracked from anywhere only internet connection is
required from user side. It can be used on mobile, smart phone and tablets.
D1 Integration between MAS and MA reports.
Various systems are used in management accounting, and reports are written for each of
them in order to analyse the company based on expense and other managerial behaviour. The
price optimization method is incorporated with the sales department in order to maximise
company revenues. Analysis is possible for these studies, and after doing it, initiative
intervention to regain control of the system is possible. Managers of Tesco use specific reports to
take corrective action.
For example, the finance department analyses the credit facilities offered to consumers
based on the accounts receivable report. It helps to provide a connection between accounting
systems and organisations, as well as assisting in the improvement of business results.
P3 Calculation of cost using different costing techniques
Indirect costs: These are called indirect costs since they are not assigned to a cost centre
directly and tends to be recovered by cost units. As a result, all overhead expenditures fall into
the category of indirect costs.
Direct Cost: These are the costs that are directly related to work performance. Direct
expenditures are those that can be easily identified and linked to a particular work.
Fixed cost: A cost that cannot vary in terms to change in volume of production. Like
rent , depreciation.
Variable cost: Cost that affects due to change in the production quantity is known as
variable expenses. For ex direct labour and material.
Marginal costing: he accounting scheme in which variable expenses are paid to cost units
and fixed costs of the duration are written off in full against the aggregate contribution for that
period is known as marginal costing.