Management Accounting Report: Financial Issues and Solutions

This report provides a comprehensive analysis of management accounting principles, focusing on their application within Tata Motors. It begins with an introduction to management accounting, outlining its functions and differentiating it from financial accounting. The report then delves into various accounting systems, including price optimization, cost accounting, and inventory management, and their importance in reporting. It evaluates the benefits of these systems, such as cost reduction and improved decision-making. The report further examines different costing methods, including absorption and marginal costing, and their implications for pricing and profitability. It also discusses the merits and demerits of planning tools in budgetary control, as well as financial issues and potential solutions. The report concludes with an evaluation of management accounting and reporting systems within an organizational context and emphasizes the role of management accounting in analyzing and resolving financial problems. Overall, the report provides a detailed overview of management accounting practices and their significance in the context of a major automotive company.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Different types of accounting system and their essential requirements...........................1
P2: Various accounting system use in reporting....................................................................3
M1: Evaluate the benefits of management accounting systems and their application within an
organisation............................................................................................................................4
D1: Critically evaluate the management accounting and reporting systems and its integration
within organisational process.................................................................................................5
TASK 2............................................................................................................................................5
P3: Different costing methods................................................................................................5
M2: Various types of accounting techniques.........................................................................7
D2: Data interpretation...........................................................................................................7
TASK 3............................................................................................................................................8
P4: Merits and demerits of using planning tools in budgetary control...................................8
M3: Use of different planning tools and their applications..................................................10
TASK 4..........................................................................................................................................10
P5: Various financial issues and measure to resolve it.........................................................10
M4: Roles of management accounting in analysing financial problems..............................11
D3: Evaluation of planning tools for respond financial issues.............................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is such a tool which is used to assist management in order to
make an effective planning and controlling the business operations with a motive of achieving
desired goals and objectives. It is applicable to every organisation irrespective of the size
whether small, medium and large. It is helpful for management of company to make an effective
decision with the help of data and information gathered through various accounting and reporting
systems. Tata motors Limited, an Indian automotive company which deals in manufacturing
wide variety of passenger vehicles such as cars, trucks, construction equipment. It has operated
in many countries such as UK, Italy, south Korea etc. thus captured large market share. The
project covers various accounting and reporting system which brings useful information to
company. Different planning tools to control budgetary control and few techniques to solve
financial problems are also discussed under this report (Armitage, Webb and Glynn, 2016).
TASK 1
P1: Different types of accounting system and their essential requirements
Definitions of Management accounting:
According to the CIMA, Management accounting refers to the process of identifying,
measuring, accumulating, analysis, interpreting and communicating relevant information which
is used by management to make an effective plans and policies with a motive of utilising
available resources in an optimum manner.
According to the Wilson and Wal, the management accounting refers to techniques and
tool which is used with an intention to provide financial and non-financial information in order
to make profitable decision to achieve desired goals and objectives.
Functions of Management Accounting
There are mainly four types of functions such as Planning, Organising, Controlling and
Decision-making. Management accounting plays an important role in these managerial functions
which need to be performed by managers with a motive of achieving desired goals and objective
within limited period of time.
Planning: It refers to making an effective planning with the help of using information
gathers through accounting system in order to achieve desired goals and objectives. A budget is
financial planning which is prepared with a motive of utilising financial resources in an optimum
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manner (DRURY, 2013). It helps in guiding and motivating employees to perform in right
direction to achieve desired target.
Organising: It is a process of creating framework and assigning roles and responsibilities
to members of an organisation on the basis of their skills and knowledge in order to bring
positive outcome in near future. Thus, it is important for manager to first identify their
capabilities of employees through analysing their previous performance and accordingly
assigning roles and responsibilities in order to get positive result.
Controlling: It is the process of monitoring, analysing the actual result in order to find
out whether an organisation moves towards right direction or not. For this, manager is required
to collect feedback from employees in order to find out deviation and accordingly take corrective
steps on time. The management of company should required ton use various accounting systems
which help them to control business activities with a motive of preventing wastage.
Decision-making: An effective plan cannot be made without an effective decision thus
the manager need to first target objectives and accordingly decide organisation structure in order
to operate business operations in an effective and efficient manner (Ferreira, Moulang and
Hendro, 2010). Thus, it is important to collect feedbacks from the employees and accordingly
focus on removing issues while taking an effective decision.
Difference between Management and financial accounting:
Management accounting Financial accounting
The main aim of MA is to provide sufficient
and important data to managers regarding
formulating an effective planning and
strategies to achieve set objectives.
The main aim of FA is to provide financial
position of company through preparing
financial statements such as P&L a/c, Balance
sheet.
The information obtained through managerial
accounting is useful for external parties such as
shareholders, creditors etc.
The information obtained through financial
accounting is useful for managers and
employees.
It is more emphasis on the future. It is more emphasis on past.
It is not mandatory by law. It is essentially required to prepare financial
statements on annual basis as per the law.
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Types of accounting system:
Price optimisation: This system helps in identifying the interest and buying behaviour of
customers towards the price the company charged for their products and services. For this, the
managers of Tata Motors are required to use mathematical analysis which help company to
examine customer's requirements and changes required in price and product.
Cost accounting system: This accounting system is important for an organisation as it
helps in determining the total cost which is required to produce quality products and services
(Grabner and Moers, 2013). The cost accountant of Tata Motors is held liable to estimate cost
before production process so that it can help company in achieving profitability. For example the
manager of Tata Motors should required to estimate total cost in manufacturing vehicle along
with the additional features implemented to make product more attractive and efficient.
Inventory management system: With the help of such system the Tata Motors Ltd. can
able to reduce inventory cost and improves profitability. The manager should required to ordered
raw material used in production process whenever they required so that cost of storing unwanted
raw materials in warehouses will be saved. Through this, the company can able to meet
customer's needs and demands on time.
P2: Various accounting system use in reporting
Reports: Reports are considered as document which provides all sufficient and crucial
information regarding business transaction happened on daily basis. Such reports are required to
prepared on daily, weekly and monthly basis. As there are various departments in Tata Motors
whose main aim is to achieve organisational goals thus collecting information about their
performance will help to get know about whether the departments are performed in right
direction or not. Such information may useful to both internal and external parties and also
improve decision making process. For example financial statement is one of the type of report
which should required to prepare by Tata Motors on annual basis so as to provide financial
position of company towards internal and external parties (Håkansson, Kraus and Lind, 2010).
Thus, there are various types of reporting which are defined as below:
Performance report: This type of report contains information regarding the performance
of company through which the manager can able to identify whether the company has move
towards right direction or not so that if any deviation found which restricts members to perform
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better can be resolved within limited period of time. It helps Tata Motors in achieving
competitive advantage and sustain in market for longer period of time.
Inventory management report: This report contains the information regarding the
amount of inventory maintained in warehouses which helps Tata motors in meeting needs and
demands of customers on time. The managers can able to run the production process smoothly
without facing any interruptions.
Accounts receivable report: This type of reports contains the list of debtors whose
payment to company may due. It helps managers of Tata Motors in getting information of their
debtors so that due amount can be covered on time which improves their financial position of
company. It is an effective tools which should be adopted by every business in order to collect
accounting details which are related with credit payment options (Kotas, 2014).
M1: Evaluate the benefits of management accounting systems and their application within an
organisation
Tata Motors Ltd. may get several benefits from management accounting systems which
are briefly described under the below :
Management accounting systems Benefits
Cost accounting systems It facilitate an organisation in minimising
wastage through assigning cost to particular
departments according to their needs and
analyse outcomes received in future.
Inventory management system It help Tata Motors Ltd. In maintain raw raw
material used in production process so as to
meet customer needs and demands in market.
Price optimisation system It help in achieving loyalty of targeted
customers and retail them for longer period of
time through setting an effective pricing
policies.
Job costing system It facilitate company in determining the total
cost invested in producing individual product
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or group of products.
D1: Critically evaluate the management accounting and reporting systems and its integration
within organisational process
There are several forms of accounting and reporting system which assist management in
making an effective and profitable decisions through acquiring sufficient relevant information
with the help of such systems. For example, accounting receivable report facilitate management
of Tata Motors in acquiring list of unpaid debtors which forces management to change its credit
policies so as to prevent uncertainties regarding recovery of payment.
TASK 2
P3: Different costing methods
Cost refers to an amount of value which are required to incur in the business operations
without any interruptions so as to achieve desired goals and objectives. It can be incurred in
production process, payment made to employees etc. Therefore the cost accountant is held liable
to estimate cost and accordingly allocate to their different departments on the basis of
requirements so that no department faces shortage of funds while operating business activities.
Tata motors which is already a established brand across worldwide capture large market share
and attained large number of loyal customers. Thus it is important for them to maintain their
strong brand image through providing efficient vehicle products along with the unique features
which makes them different from their rivals. The manager need to first divide people on the
basis of their purchasing capabilities and accordingly produce wide range of products so as to
maximise their satisfaction level (Lavia López and Hiebl, 2014). Thus, costing factor is an
important element which attracts buying behaviour of customers. There are suitable techniques
and measure which help company in reducing extra cost incurred in manufacturing process
which directly affects their profitability in positive manner. There are mainly two types of
costing methods which help in fixing the price of products they should charged from their
customers. Such methods includes:
Absorption Costing: It is a techniques which is related with spending costs on producing
specific products at optimum quality. It includes both fixed and variable cost. Cost of final
products includes direct labour, material and overhead expenses.
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Marginal costing: It is such a cost which in incurred in producing an extra unit of
product. This it includes only variable cost and fixed cost should be ignored with a motive of
analysing the net profitability (Lennox, Francis and Wang, 2011).
Comparison
Absorption costing Marginal costing
Allocating total cost to the cost centre in order
to find out the total cost incurred in production
process.
It is decision making technique which help in
ascertaining total cost incurred in production.
It includes fixed and variable cost in the total
production process.
It includes only variable cost as product cost.
Inclusion of fixed cost may affected
profitability.
Profitability should be measured by Profit
volume ratio.
The cost data is present in conventional way. The cost data is presented on the basis of their
contribution to each product.
Income statement under absorption costing
method
Particular Amount
Revenue 2500*200 500000
Less: Cost of sales
Direct material 150000 150000
Direct labour
Machine 3000u divided by 100u= 30times 600
Finishing 3000u divided by 20u = 150u 2700
Dispatch 2600u divided by 20u=130u 650
Packing boxes 2600*1 2600
Fixed overheads
Machining dep
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3000unit divided by 100u=30u 720
Finishing dep 3000u divided by 20u=150u 1800
Dispatch Dep 2600*1 2600
Total cost of 3000u 161670
Value of unpacked closing stock of 400u 20776
Value of 2600units 140894
Value of packed closing stock of 100units 5419
Value cost of sales 135475
Net profit 364525
Income statement under marginal costing
Particular Amount
Revenue 2500*200 500000
Less: Cost of sales
Direct material 150000 150000
Direct labour
Marching dep 3000u*100=30 600
Finishing dep 3000u*20u=150times 2700
Dispatch 2600u*1 2600
Fixed overheads
Marching dep 720
Finishing dep 1800
Dispatch 2600u divided by 20u=130u 5120
Total cost for 3000u*400 20440
Value of 2600units 136110
Closing stock for 100untis packed 5235
Variable value cost of sales 2500units 130875
Total net profit 364005
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M2: Various types of accounting techniques
There are basically two types of accounting techniques which may adopted by Tata
Motors Ltd. Such are given as below:
Standard costing: It is more helpful in determining future profession through considering
various aspects which includes future sales revenue, costs and demand. It is the method adopted
by most of the companies such as Tata Motors due to ascertaining future outcomes.
Marginal costing: It is adopted by almost every organization including Tata Motors Ltd.
so as to ascertain net profits through considering only variable costs.
D2: Data interpretation
As per the above calculation, there are two methods which are used to calculate
net profitability. While using absorption costing method, the profit is 364525 whereas using
marginal costing method the profit is 364005. Such difference of 520 comes due to changing in
variable cost. Thus, Tata motors Ltd. are required to adopt absorption method in order to increase
its profitability.
TASK 3
P4: Merits and demerits of using planning tools in budgetary control
Budgetary control: It is the process of identifying and analysing the performance of an
organisation through comparing actual with standard so that that find out the deviations if any.
This will help management of Tata Motors to take crucial steps to avoid such deviations within
limited period of time so that it cannot affects profitability of company (Morales and Lambert,
2013).
Objectives of Budgetary control:
 It helps in determining the desired objectives of company which need to be achieved in
near future.
 Its main motive is to communicate plans to the different departments in order to achieve
desired target on time.
 Cost allocation to cost centre in order to produce quality product without any
interruptions.
 Allocating roles and duties to members according to their capabilities (Moser, 2012).
There are different types of planning tools in budgetary control which are as follows:
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Incremental budgeting: It is budget prepared on the basis of previous budget so that the
managers can able to know the required amount in new budget period. The resources are
allocated after analysing the past budget period which helps in getting positive outcome in near
future. It motivates managers to spend more amount in the execution of project activities which
may affects the budget prepared for next year (Otley and Emmanuel, 2013).
Advantages:
 It becomes easy for employees to understand and operate the system in more effective
and efficient manner.
 Proper coordination between the departments helps in maintaining healthy relations
which brings positive result to company.
 As every departments gets equal support and guidance due to which the chances of
arising conflicts will be minimum.
Disadvantages:
 The employees gets no incentives and rewards for new ideas which demotivate them.
 Spending huge amount on current budget which brings difficulties for company to
prepare next period budget.
 The budget has been prepared manually due to which the priority for resources may
changed (Tucker and Lowe, 2014).
Zero Based Budgeting: It is a method of budgeting in which the expenses required to invest in
production process for new period are determined. It starts from zero with having no experience
thus managers need to first analyses the needs and cost. The manager is required to take fresh
and innovative decision regarding execution of project activities every year.
Advantages:
 It assures proper allocation of resources as it is based on needs and avoids irrelevant
expenses.
 This technique helps in identifying and eliminating wastage of raw materials.
 This approach helps in directing cost centres to link their mission in order to achieve
desired objectives.
Disadvantage:
 Sometimes it becomes difficult for manager to take decision regarding investing amount
in project activities which consumes more time (Papaspyropoulos and et. al., 2012).
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 The members are liable to specify all expenditures incurred by them which restricts other
department to spend less.
Activity Based Budgeting: It is a technique in which the cost allocated for specific
project activities are clearly defined and analysed so that profitable outcome may received future.
It is prepared on the basis of activities which need to executed without having any past budgeting
information. It is manually prepared which mainly focusing on developing budgets on the basis
of activities that will help in bringing efficiency in business operation (Renz, 2016).
Advantages:
 As whole business will be viewed as a single unit thus it becomes easy for manager to
prepared an effective budget without thinking too much.
 It helps company in maintaining healthy relation with their customers through providing
quality features in their product. It helps company in reducing cost through eliminating unnecessary activities.
Disadvantages:
 It becomes difficult for manager to understand various functional areas of the business as
it requires special skills and knowledge.
 It is complex in nature which required research and evaluation of different factors.
 It consumes a lot of resources of an organisation as it required to employee members to
conduct analyses and research (van der Steen, 2011).
M3: Use of different planning tools and their applications
Budgetary control brings profitable result to company in form of controlling unnecessary
expenses and utilizing allocated cost in an optimum manner. For this, there are various tools
which are used by company such as Activity Based Budgeting, Zero Based Budgeting etc. Such
tools assist management in determining the cost incurred in execution of project activities and
minimizing wastage.
TASK 4
P5: Various financial issues and measure to resolve it
Tata motors already attains strong brand image in competitive market world through
providing efficient vehicle product with unique and innovative design and features. But due to
high competition with their rivals, the sales figure may goes down due to which the company's
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financial position may also goes down. It affects their profitability as well. Thus it is important
for manager to adopt various financial tools and techniques which helps in overcoming such
financial issues that may restrict company to execute business operations in more effective and
efficient manner. For this, the company should required to prepare financial statements such as
P&L a/c, Balance sheet etc. which show true and faire financial position of company (Yahya-
Zadeh, 2012). It must be present towards the external and internal parties of an organisation in
order to get financial help from them. Such tools and techniques which helps in eliminating
financial issues and problems are defined as below:
Key Performance Indicator (KPI): This techniques helps in identifying the problems or
issues through comparing past and present year sales figure so that they can implement
corrective actions to overcome such financial issues. As manager should required to define the
target towards their members so that they can perform in right direction in order to achieve
desired target within limited period of time (Zamora, 2011).
Financial governance: There are certain laws and regulations which are implemented by
government for the purpose of running business more smoothly. Complying with policies and
standards will help company in executing business operations in more effective and efficient
manner that will help them in eliminating financial issues and problems.
Benchmarking: It is an effective tool which help managers in setting target with a motive
of giving tough competition to their rivals companies. The target should be clearly defined
towards members so that they can perform in right direction and brings best possible outcomes in
near future (Implementation of management accounting tool in organisation, 2017).
Tata motors Ltd. Toyota Plc
The performance of employees and company
will be analysed through KPI techniques which
help and motivate them in enhancing their
future performance.
It is also required to use KPI technique which
help them in identifying and analysing the
performance of employees and motivate them
in right direction.
It has attained strong brand image in market
thus need to use Benchmarking technique in
order to meet needs and demands of customers
on time.
Financial governance is also required to use by
company through which they gives tough
competition to their rivals.
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Toyota company gives tough competition to the Tata Motors Ltd. Due to which they are
always focused to maintain their financial position in order to compete with their rivals in more
effective and efficient manner. For this, there are different financial tools which are more
effective which assist them in fulfilling the needs and requirements of targeted customers. For
example, Just in time help company in maintaining availability of raw material on time so as to
utilise them in production process and meet market needs. Financial governance is also more
helpful to adopt as it directs company to operate its business functions according to the standards
and laws formulated by government.
M4: Roles of management accounting in analysing financial problems
There are several financial issues which can harm the financial stability of an
organisation such as cash unavailability, product defects, poor accounting etc. This will affects
the profitability of company due to which the management are required to adopt various
financial tools such as KPI, Benchmarking etc. in order to prevent financial issues and re-attain
strong financial performance in competitive market.
D3: Evaluation of planning tools for respond financial issues
An organisation always wants to maintain its financial position in market so that they can
compete with their rivals in an effective and efficient manner. For this, the company adopted
various financial tools in order to prevent financial issues that can damage their financial
stability. Such financial tools includes KPI, Benchmarking etc. which are required to be
considered by the management so as to enhance financial position of company.
CONCLUSION
It has been concluded from the above project report that management accounting helps
company in making an effective plans and policies in order to gain competitive advantage in
market. There are various accounting and reporting system which helps management in getting
useful and relevant information in order to make an effective decision regarding achieve desired
goals and objectives within limited time period. There are various financial tools such as KPI and
Benchmarking which help company in resolving all financial issues and problems on time.
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REFERENCES
Books and Journals
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