Analyzing Different Types of Management Accounting and its Essentials

This report analyzes different types of management accounting and its essentials. It discusses the methods used for management accounting report and provides insights on income statement with marginal and absorption costing. It also explores planning tools for budgetary controls.

Management
Accounting

Table of Contents
Introduction.................................................................................................................................................3
Main body....................................................................................................................................................3
P1 Analyzing different types of management accounting and its essentials.............................................3
P2 Methods used for management accounting report..............................................................................5
TASK 2.......................................................................................................................................................6
P3 Income statement with use of marginal and absorption costing..........................................................6
TASK 3.......................................................................................................................................................8
P3 Planning tools that are used for budgetary controls and their importance...........................................8
TASK 4......................................................................................................................................................11
P5 Solving the financial problem, enterprises adopted management accounting system.......................11
Conclusion.................................................................................................................................................14
REFERENCES..........................................................................................................................................15
Books and Journals:...............................................................................................................................15

Introduction
Management accounting is a systematic approach for measuring and analyzing
organization's account and its financial needs (TTY Alabdullah). Every organization needs a set
of its budgets, profits and expenses in a one form of accounting. Management accounting focuses
on preparing budgets and financial records to better go through with the operational function.
This report is based on Tesco, a largest supermarket store in United Kingdom which deals in
groceries, household products, and other consumer goods. This report consist all the information
regarding accounting analyzing of Tesco by examine its importance and by analyzing its types
and methods. Also, use of cost accounting techniques in order to prepare profit statements to set
business objectives, plans and policies.
Main body
P1 Analyzing different types of management accounting and its essentials.
Management accounting is an essential and vital sources of indulging firms data into a
systematic approach. This includes analyzing and identification of required funds or investment
which an organization needed to much focus on. There are various accounting methods that
through which financial report of the company has been made from the month start to month
end. These financial accounts assist an organization to make effective plans in accordance with
the requirement of operations (NG Hapuarachchi, A Amarasinghe – 2019)s. Tesco used its
accounting methods every financial year by using required method in order to promote working
towards its goals of achieving maximum profit satisfaction. Also, accounting evaluates cost
effective techniques which could minimize the cost of product and maximize the output.
There are number of management accounting methods that are relevant the most
appropriate tools for business accounting and describes the main aim of the organizations
criteria, by acknowledgment of these methods an organization proves to be better result in
upcoming years. Through which Tesco achieve its goals and objectives. These are described
below.

Profit maximization: Management accounting enables the organization to maximize its profit
by analyzing its cost, risks, return into the products by preparing financial accounts for the whole
year. This could help by comparing actual current business performance and productivity from
past performance to set targets of achieving high profit potential. Tesco has achieve its objective
to attain 10% increment in profit every year.
Efficiency booster: management accounting works as a efficiency booster in business operation
towards profitability and productivity. By analyzing actual position of the company in terms of
high profit or situation of loss, employees works with great efficiency as this results in employee
welfare, bonus, extra rewards and much more. Employees of Tesco enjoy high benefits which
make them motivated towards efficient production.
Several systems undertake in management accounting.
Inventory management system: It is a crucial and important part of management operation.
This includes maintenance of stock and as per the sales and demand of the product. Inventory
includes raw material, semi-finished goods and work in progress items. By maintains records of
inventory Tesco promote effectiveness and efficiency.
Cost accounting: It is also a significant element of accounting. It enables the functions of
reducing cost and increases profits and returns. It helps in managing data of cost into different
product segment in Tesco. This could be done through break-even analyze, marginal costing
techniques, this accounting function helps to identify occurring expenses as cost and implement
required technique to reduce it a maximum level.
Price optimization system: This termed to be most powerful factors amongst all. As this
method influence on the customers behavior and market response to product pricing. For this
instance, the organization must analyze customer preference and durability of the product,
through which effective pricing policies needs to be develop.
Job costing system: job costing includes various types of cost involve in various activities to
workforce which indeed needs to be effective. This enables actual expenses and revenues of the
organization. Tesco managers prepare various costing techniques to provide good quality product

at cheap prices. This helps the organization to actively participate in product diversification
activities by making effective job costing system.
There are some essential requirements that of management accounting system that are
mentioned below:
 Relevancy of information: It is very important for the organization that they should use
relevant information for making management accounting. Because irrelevant information
give wrong information when management involves in decision making process.
 Measurement of information: The information that involve in management accounting
should be measurable so that judgment can be pass easily and accurately.
 Accuracy of information: It is necessary for the management that they use accurate data
rather than false or on assumption basis. Because it destroy the quality and give wrong
decisions.
P2 Methods used for management accounting report.
Management accounting report is as similar as accounting procedure in order to maintain
systematic record of accounts and implications of policies. Tesco uses various methods of
management accounting report for its organization. These are discussed below:
Budget report: This method is helpful in preparing budgets for each and every segment of
business organization. In order to regulate prepared budgets into each department to plan action
in according to the set of its criteria into the plan. Tesco prepared an effective budget plan for its
every outlet and every department, so that product would be finalized into effective cost
practices. Also, this organization follows all of its pricing strategies whether in production or
retailing
Cost managerial accounting report: This method enables an organization to prepare its cost
management. The cost which is affected by selling different product and services in order to
make profit. This cost may include promotion cost, discounted or other packaging cost during the
sell of product. Tesco prepares effective cost managerial techniques which by providing its
quality product less than one roof at costumers easy reaches. This eliminates wasteful and
unwanted cost during the selling or promotion (Y Izmailov. And. et. Al. 2020).

Performance report: It is the most important report of all. This includes the performance level
of employees in the organization by comparing it with present performance to past performance.
This report work as a guide, moves workforce towards the path of success and achieve targeted
goals which in respect of organizations favor. Performance check is a vital concept in every
field, as this improves individual’s ability and affinity towards its work done. The managers of
Tesco regularly generate this report in order to work on needed areas for employee’s
development as well as organizations growth.
From the above report, it is well examine that manages must evaluate these models and
reports for better analyzing business situations and its required field, by choosing relevant
options as per the demand of customers and pricing policies. The above mentioned systems of
accounting are indeed the most effective for an organizations growth and consistency.
TASK 2
P3 Income statement with use of marginal and absorption costing.
Income statement:
Income statement is a statement used in the management accounting for identifying and
analyzing the current financial position of organization. It reports the financial position of the
company with other two important statement that are cash flow statement and balance sheet
statement. In earlier time it is also known as profit and loss account that maintained by
accountant in their respective statements. In the profit and loss account or income Statement
Company focuses on expenses and revenues of the organization which are in monetary terms. It
is one of the important financial statements that show the real position of the company in the
market. It can be calculated from the subtraction of total expenses with total revenues. Total
revenues are the sum total of non operating and operating revenues (RM da Silva Laureano) (B
van der Kolk ). Revenues is not similar to receipts they are different from the receipt. Receipt is
not recording in the income statement where as revenues are recording in the income statement.
Income statement provides valuable and measurable recording of transactions that are important
for companies operations. Income statement is very important for the company's real position
which is submitted to the Securities and Exchange Commission. Income statement is the base of

balance sheet because without income statement balance sheet cannot be prepared. When
balance sheet designs it requires the surplus or loss of the company which can be obtained from
income statement. So it is very essential for companies to make income statement of the
company.
It is one of the important function that perform by the accountant of company. Tesco
international company that needs to maintain or prepare the income statement for showing
profits and losses to the audience. It is the way or means that used by the companies for knowing
the exact profitability of organization. Income statement gives benefit tu companies as well as
customer also. Income statement includes all the transactions which are in monetary terms. It
does not include non monetary transaction.
Absorption cost:
It is one of the types of cost that is used in the managerial accounting for capturing all the
cost that are related to a particular manufacturing product. It includes direct or indirect cost such
as direct labor, direct material, insurance and rent. It is required by GAAP which is the acronym
of generally accepted accounting principles. Absorption cost is not similar to variable cost it is
different from that. Because it determine the fixed cost to each unit in the manufacturing
products. It is also known as full costing, because it also includes fixed overhead cost. There is
difference between variable costing and absorption cause because variable cost does not include
fixed overhead and whereas absorption cost include fixed overhead.
Marginal cost:
Marginal cost is the change which occurs from producing of each additional unit in total
production. It can be calculated from the division of changing in production cost through change
in quantity. The main purpose of calculation of this cost is to identify the point at which
organization obtain their economies of scale. The producer can gain profit in the situation of
when the marginal cost is less than per unit price.

TASK 3
P3 Planning tools that are used for budgetary controls and their importance
There is number of ways or means that are used for control of budgets in the managerial
accounting. There are very tools and techniques used by the companies for budgetary control.
These can be a capital budgeting and cash budget. These are the planning tools that can be e use
for the achievement of objectives and goals of organization. Every organization used these tools
for their effective functioning of operations in organization. Tesco used planning tools for the
achievement of their goals and targets. These tools are very essential for identifying the amount
allocated for particular investments. The detailed description is mentioned below:
Capital budgeting:
Capital budgeting is a tool that gives the right choice of selection of investments that add
values to the company. It includes purchasing of an asset for example, purchase inbox machinery
and equipments, lands for the organization. With the help of capital budgeting, the investor can
identify risk with rate of return through the selected project. It helps to choose right project for
the company that gives additional value. In the capital budgeting process there are three main
approaches that is used by companies. Three approaches are internal rate of return, payback
period and net present value. With the help of these three approaches investor can identify return
with the proper calculation of risk. It also can identify the net present value in the future on that
time when they get return. It gives the exact calculation of return which is beneficial for the
investor to invest in the project. It is very helpful for the investors who don't have any knowledge
about the market trend so it the application of this tool, investigate all relevant information which
are needed for the investments. Tesco is the large corporation, that needs or require these tools

for measuring the risk and return for selection of investments. Tesco generally invest in many
thanks such as de purchase machinery and equipment for the production purpose. So the capital
budgeting is one of the tool that gives support to the company for selection investment projects.
Advantages:
 When the company identify investment opportunity so capital budgeting is one of the
tools that mostly used by the companies to identify the risk and return in the particular
project (M Labrador, J Olmo).
 It helps for decision making of investments that give suggestions industry emissions to
the company that which option is yield for their business.
 It has two companies for their long-term goals and objectives.
 Give the basic idea for the investments that include all financial information which are
required by the company that directly help for adequate control on expenses of relatable
projects.
Disadvantages:
 The one of the most common and important disadvantage is that companies can use this
tool only for long term objectives. So they become irreversible and inflexible in nature, it
cannot involve short-term projects.
 These tools are not calculated exact and accurate figures, because they are based on
assumptions and estimations which are not real.
 One single wrong decision on the basis of capital budgeting gives a heavy loss to the
organization. Because it cannot be done by any general person, can be done only by
professional or expert who has the knowledge in managerial accounting.
Cash budget:
According to the name cash budget include all the cash related incomes and expenses. It
does not involve any non cash items. It is the estimation of cash inflows and outflows in the
organization for a specific time period. This tool is used for identify the company's working

capital, that they are identified that companies are sufficient to cope up with day to day
operations or not. Because in daily operations company needs a lot of cash, which has to meet it
the day to day expenses (AS Setiawan, and. et. Al., 2019). When the company forecast their sales
and productions for particular time period, then they go for cash budget. Because in cash budget,
records the inflows and outflows of the company which includes sales. When the company sell
their product and services in cash than they are recorded in the cash budget which gives help to
the companies for allocation and pre determination of sales and production. Tesco use cash
budget for meeting the day to day expenses in their organization.
Advantages:
 Cash budget helps to meet the day to day operations that are related to cash.
 With the help of cash budget, companies identify their position that they are able to meet
dear liquid expenses. It has to give the support to the organisation that they have
sufficient equity for meeting necessary daily operations.
 It also helps the company to identify the too much cash available which are not used for
the investment purpose. With the excess cash companies can take decisions for
investment.
Disadvantages:
 Cash budget considers only cash related items other expenses which are not in cash
cannot be considered in the budget that give the wrong amount of cash.
 Cash invites distortions in the form of deposit unnecessary fines that are not correct for
the company’s productivity and profitability.
 Cash budget is not real because it did not record noncash items that gives the non
accurate calculation of cash budget.
From the above discussion it is analyzed that cash budget and capital budget both are used
for the positive controls (C Nitzl 2016). Both tools are necessary for budgetary control; Tesco
used both tools because what is the large organization so they have to maintain all the budgets
for managerial accounting. It is analyzed that capital budget helps to choose the right option of

the investment projects such as purchasing of lands, machinery and equipment. Where cash
budget is include all the flows of cash such as inflows and outflows half cash related items. it
gives predetermination and forecasting of sales and production of the organization.
TASK 4
P5 Solving the financial problem, enterprises adopted management accounting system.
In the present scenario, enterprises face many issues and challenges related to the
financial activities of the organization. So it is very important for the organization to identify the
needs and requirements in financial department. It is crucial for the organization that proper
application of tools and techniques of financial accounting should be adopted by the company. It
is analyzed that, Tesco facing the issues regarding budgetary targets which means deep
knowledge and practical applicability of managerial accounting system. it Can be only overcome
through the use management accounting system so that they attain or achieve their targets and
goals. In the dynamic environment of business needs proper identification of requirements of
business which helps to grow and success in their field (AM Alamri 2019). Management
accounting system is one of the best tool that used by the companies for solving their problem. It
manages all the activities that are related to the financial terms. Both organization solving their
problems with their own methods that are mentioned below:

Method Tesco Sainsbury
Liquidity, solvency and
debt ratio
Tesco used double equity and
liquidators solvency ratio for
solving the financial problem
which they are face. Because
the maintenance of liquidity
ratio and solvency ratio is
very essential for the
company to grow and survive
in the market. With the help
of these ratios company can
meet their financial
obligatory. It helps to meet
their targets and goals with
the proper application of
these ratios (WA Van der
Stede).
Sainsbury's also use these
ratios for analysis and
identification of performance
by different factors. They use
insolvency ratio and liquidity
ratio for gaining the
knowledge of all related
matters on the organization.
It has to manage and
maintain the liquidity in the
organization. They are very
important for see the
situation of companies that
they are sufficient liquidity in
the company.
Profitability ratio Profitability ratio as one of
the important issue that every
company wants to know. It
gives the real position in the
market. with the help of
profitability ratio complete
and understand their position
and profit and surplus of the
company so that they
perform according.
Sainsbury's is the global form
which needs and requires the
profitability ratio for
knowing the position in the
market. It helps to know that
they can survive or not in the
competitive world. This ratio
is not only helpful for
company but also it gives the
financial position to
customers (PL Green-
Douglas – 2020).

It is analyzed from the above discussion that Tesco and Sainsbury's need to apply proper
management accounting system so that they can deal with the facing issues and challenges. In
accounting systems include all the ratios cash flow statement and other financial activities which
give support to the organization to their position in the market (DR Borker – 2016). It is
recommended that TESCO should use cash flow statement and cost accounting that helps in
making right decisions. Cash Flow Statement helps to take right decisions related to cash
transactions and ascertaining the cost of productions and availability of cash balance. Whereas
cost accounting helps to show exact position of financial statement of organization. It is
recommended to the organization that they should adopt management accounting systems so that
they can reduce their financial problems. It helps in analyzing the financial position of
organization.
Conclusion
It can be concluded from the above report that managerial accounting is the accounting
that managers by the professional export of the company to know financial position.
Management accounting is a wider concept which includes all statements, ratios and costing that
gives the support to the organization. These tools and techniques are very important for the
success and growth of the business. With the help of these tools and techniques company can get
to know their financial position and ability of doing investments in the organization. These
functions are very important for all and every type of organization who wants to deal with the
upcoming challenges.

REFERENCES
Books and Journals:
AM Alamri - Baltic Journal of Management, 2019 - emerald.com
AS Setiawan, and. et. Al., 2019 - scieloopcion.com
B van der Kolk - Accounting Education, 2019 - Taylor & Francis
C Nitzl - Partial Least Squares Structural Equation Modeling, 2018 – Springer
DR Borker - 2016 - um.edu.mt
M Labrador, J Olmo - Public Money & Management, 2019 - Taylor & Francis
NG Hapuarachchi, A Amarasinghe - 2019 192.248.87.11
PL Green-Douglas - 2020- search.proquest.com
RM da Silva Laureano… - Society and Economy …, 2016 - akjournals.com
TTY Alabdullah - Australasian Accounting, Business and Finance …, 2019 - ro.uow.edu.au
WA Van der Stede - Journal of International Accounting …, 2017 - meridian.allenpress.com
Y Izmailov. and. et. al. 2020 - papers.ssrn.com