Financial Decision Making: Tesco Plc and Management Accounting

This report provides a comprehensive analysis of financial decision-making processes, focusing on the application of management accounting tools and techniques. It begins with an introduction to the importance of financial decision-making and defines key accounting and finance functions. The report then introduces Tesco Plc as a case study, providing background information on the company and its management accounting practices. The main body explores the role of management accounting techniques in planning, control, and decision-making, covering topics such as budget and budgetary control, marginal costing, standard costing, and financial statement analysis. A critical analysis and evaluation of these techniques are presented, discussing their practical application and impact on enhancing company practices. The report concludes with a summary of the key findings and insights gained from the analysis. The report uses real-life information and examples to support the analysis of the concepts.

Running head: FINANCIAL DECISION MAKING
Financial Decision Making
Name of the Student:
Name of the University:
Author’s Note:

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Executive Summary:
This report is prepared to analyze and understand the concept of management accounting tools
and techniques and the use of such techniques in financial decision-making. Management
accounting is the process of analyzing the financial and operational performance of the
organization and helping the management of the organization to take various important business
decisions. In this report, some of such decision making process of the management accounting
system have been analyzed with the help of some real-life information.

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Table of Contents
Introduction:....................................................................................................................................3
Brief overview of the company:......................................................................................................3
Role of Management Accounting Techniques:...............................................................................4
Budget and Budgetary Control:...................................................................................................4
Marginal Costing:........................................................................................................................5
Standard Costing:.........................................................................................................................5
Financial Statement Analysis:.....................................................................................................5
Critical analysis and evaluation of the Management Accounting Tools:........................................6
Conclusion:......................................................................................................................................7
References and bibliography:..........................................................................................................9

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Introduction:
Business organizations are established with the intention of making profits from their
operating activities. Every business organizations are having some predefined goals and it is
defined through their mission and vision statement. To achieve those mission and vision, they
need to make various important business decisions in time to time. There are various issues and
specific information needs for such decision-making (Ahmad 2014). In this report, such decision
making process have been analyzed with the use of management accounting tools and
techniques. Management accounting is the process of helping the management of a business
organization with their specific information need for a conscious business decision making
(Balakrishnan, Labro and Soderstrom 2014). For better analysis of the topic, the Tesco Plc has
been selected for making the analysis fair and in context of real-life managerial situation.
Brief overview of the company:
Tesco Plc is a UK based retail chain of groceries and general merchandise. They are
having more than 6,800 retail stores and a work force of more than 440,000 employees and they
serve more than 80 million customers every week. Tesco plc known as the Tesco is one of the
renowned grocery brand in UK. They have marked a significant financial and operational
performance over the last couple of years with their operational and managerial efficiencies.
They are concerned about the quality of their products and focused in serving their customers
with better quality products and service experiences (Tesco Annual Report 2018).
Tesco Plc is having a group of well-trained and well-experienced management personnel
who are continuously working towards improvement of their managerial efficiencies. They

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classifies each issues of the management and makes a conscious decision with due care for
making solution to each of those issues. Beside the business operational management, they have
segmented a special risk management initiative to manage the risks involved in their daily
business operations as well as the investment risks (Tesco Annual Report 2018).
Role of Management Accounting Techniques:
Management accounting is a branch of accounting, which is aimed at analyzing the
financial and operational activities of the business. Management accounting process creates
meaningful information for the use of the management for making various important business
decisions. Business organizations have their predefined set of goals and objectives and managers
are trying to achieve those goals and objectives through their business decisions and
management initiatives (Brewer, Garrison and Noreen 2015). There are various management
accounting tools and techniques, which help the management accountants to analyze the business
process and activities and to create meaningful information for the use of the management. Some
of such important managerial tools and techniques can be named as the budget and budgetary
control, financial statement analysis, financial planning, marginal costing and standard costing
(Cooper 2017). Some of such important management accounting techniques can be elaborated
briefly as below.
Budget and Budgetary Control:
Budget is the present estimates of the future incomes and expenses to predict the future
and to plan for the courses of actions for the future. Historical information is used for preparing
the budget and projected with the realistic expectations for the future. The most important
function of the budget and budgetary control is the measure the actual performance of the

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business and the find the deviation from the budgeted figures (Fleischman and Parker 2017).
Causes of such deviations are then inspected and various corrective initiatives are taken for the
solution of the issue.
Marginal Costing:
Marginal costing is one of the important techniques of the managerial accounting and
decision-making process. Marginal costing is the process of analyzing the incremental profit or
benefit arising from the business activities and based on the analysis various important business
decisions are made. It helps in taking make or buy decision and the shut down decisions.
Marginal costing is very important for taking outsourcing decisions and shutdown decision
(Fullerton, Kennedy and Widener 2014). It also helps in revising the business process to
optimize the business operation and to achieve the managerial goals.
Standard Costing:
Standard costing is another important managerial accounting technique, which defines
predefined standards for some business activities and compares the actual performance with the
standards. Devastations from the standards are identified and corrective actions are taken for
improvement and achievement of those standards. This is a most important and helpful
management accounting tool, which can be used for various important managerial decision-
making. It enhances the operational performance of the business organization and it helps in
achieving certain level of efficiency for the business (Kokubu and Kitada 2015).
Financial Statement Analysis:
Financial statement analysis is the process of the analyzing the financial statement of the
company for the purpose of the decision making process. This process is being conducted by

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both stakeholders, internal and external stakeholders. The external stakeholders tend to evaluate
the financial performance of the company and they value the business. The financial
performance of the company is being analyzed using the accounting tool like accounting ratios
and analyzing the balance sheet and the profit and loss statement of the company (Pavlatos and
Kostakis 2015).
Critical analysis and evaluation of the Management Accounting Tools:
From the above discussion, it can be understood that, the main objective of using the
management accounting tools and techniques is to make conscious business decision for the
improvement of the operational and managerial efficiency of the business. In doing so, various
management accounting tools and techniques are used which have been described in above
paragraphs. It can be observed from various successful business cases that, there is an immense
importance of the management accounting tools and techniques in managerial decisions and
planning and in achieving the overall goals and objectives of the organization. Planning is the
first course of action of the management which aims at achievement of the overall organizational
goals (Kaplan and Atkinson 2015). Unlike every other activity, business operations also face
various issues and that needs a solution which involves certain important decisions. Managers
also need to keep ready alternative courses of actions or multiple plans for the uncertain
situations and these set of multiple plans are known as the business strategies. Therefore, to
achieve the overall goals and objectives of the business organization through managerial
efficiency, they need to formulate strategies which in turn are the set of multiple plans (Kaplan
and Atkinson 2015).

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From the above discussion, it can be understood that, planning is an integral part of the
strategies and is a tool for achievement of mission and vision of the organization and
management accounting tools, techniques and management accounting information helps in
making a proper plan and action strategies. Short term success of an organization depends on the
profitability and competitiveness. They need to make a significant amount of profit as well as
need to be competitive in the market. They need to set competitive price for their products
without affecting the quality of their products and services. On the other hand, long term success
of the company depends on the operational and managerial efficiency. Companies need to
analyze their existing manufacturing process and need to find out the areas for improvement and
reduction of costs (Kaplan and Atkinson 2015). Sometimes it is more beneficial to outsource
some of the activities of the organization rather than making it using their own facilities.
Sometimes it becomes essential to shut down a particular product line or a loss making segment
of the company. All those actions need a conscious and a futuristic decision. Management
accounting tools and techniques helps the management of the business to analyze the existing
operations of the business and help them to find the solutions for all of those issues. As explained
above, in case of outsourcing decision, the marginal costing techniques is applied and in case of
shut down decision also the marginal costing technique is applied (Maskell, Baggaley and
Grasso 2017.). Therefore, the importance and application of the managerial accounting tools and
techniques for planning and decision making is immense and cannot be ignored. It is an
important tool for the management which helps them in each of their critical business issues and
gives them a better solution with the required information sets and a conscious decision as an
outcome.

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Conclusion:
From the above discussion and analysis it can be concluded that, every organization are
striving to achieve their mission and vision and to have a sustainable growth for their business.
They need to formulate efficient strategies which will be helping them to achieve those short
term and long term objectives. Management accounting is a special branch of accounting which
applies various management accounting tools and techniques to give sufficient information to the
management for decision making and planning. Business strategies for the success include
multiple set of plans which is an outcome of the application of the management accounting tools
and techniques. Therefore, conscious decision making and strategy building depends largely on
application of various management accounting tools and techniques and application of such tools
and techniques consistently and with rationality can help the organization to improve their
operational and managerial efficiencies.

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References and bibliography:
Ahmad, K., 2014. The adoption of management accounting practices in malaysian small and
medium-sized enterprises. Asian Social Science, 10(2), p.236.
Balakrishnan, R., Labro, E. and Soderstrom, N.S., 2014. Cost structure and sticky costs. Journal
of management accounting research, 26(2), pp.91-116.
Brewer, P.C., Garrison, R.H. and Noreen, E.W., 2015. Introduction to managerial accounting.
McGraw-Hill Education.
Cooper, R., 2017. Supply chain development for the lean enterprise: interorganizational cost
management. Routledge.
Fleischman, R.K. and Parker, L.D., 2017. What is Past is Prologue: Cost Accounting in the
British Industrial Revolution, 1760-1850. Routledge.
Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting practices. Journal of
Operations Management, 32(7-8), pp.414-428.
Guilding, C., Cravens, K.S. and Tayles, M., 2000. An international comparison of strategic
management accounting practices. Management Accounting Research, 11(1), pp.113-135.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Kokubu, K. and Kitada, H., 2015. Material flow cost accounting and existing management
perspectives. Journal of Cleaner Production, 108, pp.1279-1288.

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Maskell, B.H., Baggaley, B. and Grasso, L., 2017. Practical lean accounting: a proven system for
measuring and managing the lean enterprise. Productivity Press.
Pavlatos, O. and Kostakis, H., 2015. Management accounting practices before and during
economic crisis: Evidence from Greece. Advances in accounting, 31(1), pp.150-164.
Tesco Annual Report. (2018). [ebook] Available at:
https://www.tescoplc.com/media/474793/tesco_ar_2018.pdf [Accessed 22 Aug. 2019].