Management Accounting Report: Tesco Plc Financial Analysis & Tools

This report provides a comprehensive overview of management accounting, exploring its systems, reporting methods, and planning tools. It examines the benefits of management accounting systems, including cost accounting, inventory management, job costing, and price optimization. The report delves into various management accounting reports such as budget reports, account receivable reports, performance reports, and cost reports, highlighting their significance in decision-making. Furthermore, the report explores planning tools like benchmarking, break-even analysis, and cash flow methods. The analysis includes a focus on Tesco Plc, a retail company, evaluating its financial statements and the application of these management accounting techniques. This report provides valuable insights into how management accounting systems and reporting integrate within an organization and their impact on strategic decision-making, offering practical applications and analysis for students studying business development.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
PART 1.......................................................................................................................................1
1. Management accounting systems............................................................................................1
2. Management accounting reporting..........................................................................................1
3. Benefits of management accounting systems.........................................................................1
4. Integration of MA systems and MA reporting in an organization..........................................1
Part 2: Planning tools used in management accounting..............................................................1
PART 1.......................................................................................................................................1
Analysis of financial statement of Tesco Plc:.............................................................................1
CONCLUSION................................................................................................................................1
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting is an effective process as it helps in evaluating various other
information in order to take strategic decision. Management accounting is very useful in
planning, strategic management, finding solution to the problem, etc.
This study will examine the benefits and requirements of management accounting
system. It will also critically examine the various different methods of management accounting
reports. This study also determines and evaluates the integration of MA systems and MA
reporting in an organization. This study also includes different planning tools such as
benchmarking, break even analysis, cash flow method, etc. furthermore, this study evaluates the
MA techniques and methods.
Tesco company is a retail company in Europe which effectively provides various grocery
products and other merchandizes. They have started their operations from the year 1919 and
provide various effective product and services.
TASK 1
PART 1
1. Management accounting systems.
Management accounting (MA) helps in analysing various managerial information which
helps in strategic decision making for the internal stakeholders of the company. It is very useful
in forecasting, new product analysis, valuation of stocks, variance analysis, break even analysis,
benchmarking, comparative analysis and capital budgeting analysis, etc.
Cost accounting system: This system helps in effectively estimating the various cost of
the products and its also helps in eliminating the unnecessary cost attached at the time of
production and manufacturing of the products and rendering services. This method is very useful
in evaluating the input cost of each production and also evaluate the areas where cost can be
eliminated in order to attain economies of scales (Drake, Roulstone, and Thornock, 2016). It is
also very useful in evaluating the financial performance of the Unicorn company. It is very
useful in cost control programs which results in improving the net margins of the company in the
future.
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Inventory management system: This system keeps a track of the level of inventory in the
production unit which in turn results in higher operational standards and efficiency. It is useful in
tracking various inventory levels, sales, deliveries, etc. it is very useful in material tracking,
inventory forecasting, automating the records by effectively integrating with ERP (Kaplan and
Atkinson, 2015). It is very useful in effectively managing all the logistics in a systematic and
efficient manner. Inventory management is crucial because it is a major part which results in
ongoing operations of the business. It is very useful to take timely decision in order to manage
the operations of the business. It is also very useful in eliminating the manual process so that
they can focus on more important task.
Job costing system: This system is an effective process which helps in evaluating the
cost for the specific product or service. This tool is used to evaluate the cost attached with each
production unit of a particular job. This is very useful in identifying the most profitable and non-
profitable units of job. It takes into consideration the material, labour and overhead cost of the
each job. It is a very crucial activity and it helps manager of the organization to keep the track of
the various other expenses (What is job order costing?, 2019). It helps in eliminating
unnecessary jobs in order to attain higher profitability for the Unicorn company.
Price optimization system: This system is useful in analysing the behaviour and attitude
of the customers with respond to the change in the prices of different products and services
rendered (Drake, Roulstone, and Thornock, 2016). This method helps in determining the most
effective price which helps in attaining the goals and objectives of the company by effectively
maximizing the operational profit. It is very useful in deciding the best competitive price which
results in higher operational standards and efficiency.
2. Management accounting reporting.
Management accounting reporting contains all the necessary information which helps in
providing all the necessary information which helps in planning, regulating and judging the
effectiveness of various activities of the organization (Merchant and White, 2017). Management
accounting reporting helps internal managers of the Unicorn company to take necessary decision.
Budget report: This helps in estimating the cost of the each budgeted activity which in
turn helps in comparing the actual budget with the set budget and evaluate the cause of the
variance (Otley, D., 2016). It helps in effectively estimating the cost of the activity and in case of
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any deviation necessary action is taken. Budgeting helps in controlling the expenses of the
company which in turn helps in strategic decision making. It is very crucial in determining the
most profitable units by effectively controlling the cost and expenses (Schaltegger and Burritt,
2017). It is also very useful in comparing the actual budget with the budgeted revenues in order
to attain higher goals and objectives.
Account receivable report: It helps company in determining the list of unpaid customers
in order to collect the money from them within a particular stipulated time. It helps in better
performance of the company which in turn results in higher operational performance and better
goodwill (Quattrone, 2016). It will help in determining the financial position and health of the
company by collecting the cash from the people to whom goods were given on credit. It is also
very useful in improving the credit risk of the company which leads to higher sales and
profitability. It is also an effective process in determining the time required to collect the amount
for the goods given on credit.
Performance report: This report helps in analysing the performance of each activity in
particular department in order to analyse how much profitable is this unit for the further growth
and development of the Unicorn company. It is very useful in collecting all the necessary
information and evaluate the progress and current status of certain activity to internal
stakeholders in order to take necessary decision (Weetman, 2019). It helps in comparing the
actual with the budgeted set plan which helps in analysing the cause of variance and take
necessary measures op resolve the problem. It helps in prioritizing the activities which results in
higher operational growth. It is also very crucial in evaluating the units which generates higher
profit and helps in higher production.
Cost report: This system helps in computing the cost of each activity which helps in
determining the cost of the particular process, product and project in order to attain desired goals.
This helps management in controlling the cost of each activity which in turn helps in making
strategic plan and attain economies of scale (Drake, Roulstone, and Thornock, 2016). It also
helps in reducing cost and increasing sale which leads to higher growth and success for the
business. It also helps company ion determining the most profitable unit and which department
of the company leads to higher profit.
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Other managerial report: It is very useful in planning, decision making, regulating and
measuring performance in order to effectively analyse the various different patterns and gain
useful information for the Unicorn company. There are various other managerial reports such as
pro forma cash flows which effectively evaluates the cash inflows and outflows of the company.
Financial reports helps in determining the financial position and performance of the organization.
Sales report of the company determines the increase or decrease in sales or production unit
which affect the profitability of the organization (Schaltegger and Burritt, 2017).
3. Benefits of management accounting systems.
Cost accounting system: It is very useful in analysing the profits by accurately estimating
the cost of each production (Merchant and White, 2017). It helps in examining the various
profitable units of the company for future growth and success of Unicorn company. It is very
useful in reducing prices, control over materials, identification of profitable and non- profitable
units, etc. which leads to higher operational performance.
Inventory management system: This system is very beneficial as it helps in integrating
the entire business and also helps in automating various manual task in order to attain higher
goals and productivity. It helps in maintaining appropriate level of stocks and it does not results
in over stocking or under stocking n order to attain higher operational standards and efficiency.
Job costing system: This system helps in keeping track of the performance of the
individual in terms of efficiency, cost control and productivity (Kaplan and Atkinson, 2015). It is
also very useful in effectively evaluating all the cost of the particular job in order to prioritize the
most crucial job.
Price optimization system: It is important as it is useful in enhancing the performance of
the company. It is very beneficial in setting competitive price for a particular products and
services. This leads to higher profitability and market share of the Unicorn company.
4. Integration of MA systems and MA reporting in an organization.
(Drake, Roulstone, and Thornock, 2016) said that, integration of management accounting
system in Unicorn company helps in continuous improvement and leads to further growth and
development. It helps in measuring the effectively controlling the various expenses and cost of
the company in order to achieve greater heights. (Maas, Schaltegger and Crutzen, 2016) argued
that, it is based on intuitive decision making and leads to personal biasses.
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(Quattrone, 2016) said that, integration of management accounting reporting in Unicorn
company helps in improved communication and decision making between internal stakeholders
of the organization. It is also very useful in improving the validity and accuracy of the data in
order to gain clear insight on the financial position of the company. (Kaplan and Atkinson, 2015)
argued that, it is based on past prediction of the data which largely affect the future decision of
the company.
Part 2: Planning tools used in management accounting
Planning tool is mainly used by company to analyse their various step to endeavour the
activity to earn more profits. Thus planning is to be conducted by the management of the
company to take effective decision regarding various objectives which is to be accomplished by
company (Falkner and Hiebl, 2015). This tool and techniques are mainly utilized to evaluated the
wastages of resources and also examined various facilities which are provided by company are to
be accurate and visible to enhances their business for longer term profits. There are mainly three
types of planning tool which is used by Unicorn company to run their business into path of
success such as:
 Benchmarking: In this tool, mainly companies set the accurate goal by viewing the other
company strategy and then examined the facts which is to be achieved in comparison to
other company. Usually company use such tool by making continuous improvement in
the working and also changing their strategy to achieve more success in comparison to
other business. The main advantages of choosing this planning tool is that they set some
common goal to the employees as there performances are to be measured in the bases of
actual performance with the expected performance and then accordingly they are to be
motivated their team leaders and managers for more increment in their work
(Jarzabkowski and Kaplan, 2015). Similarly, the disadvantage of using the benchmarking
tool is that if the competitors are flawed due to some aspects comply work according to
that fawn strategy only and they only improve their techniques by viewing the negative
points (Advantages and Disadvantages of Benchmarking, 2019). Thus, by this
disadvantage they set their standards according to their set norms only which reflect the
low standards and budgets to company and no results of improving their performances.
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Unicorn company use this planning tool to set their performances by comparing the
performances of other company and work according to the set norms. For e.g. if they are
promoting some products in market they set the benchmark by viewing the performances of their
competitors regarding the same product's success and then set goal which they had to be
achieved within the stipulated time and efforts.
 Cash flow budgeting: This planning tool is important in company as it analyse the
income and expenditure during the certain time period. Company mainly uses this tool to
analyse their monthly, quarterly and annually income expenditure. By preparing this cash
flow budget it helps to invest in certain projects to gain more profits and earn to manage
their activities at higher level. The main advantages of choosing this planning tool is that
company can invest in certain project if they have surplus cash in their accounts and by
investing in project they can also manage their cash effectively and represent their
stakeholder bout the stability of the company at larger scale (Maskell, Baggaley and
Grasso, 2017). By having the stable position in the company they can also expand their
operational activities into some other country and also bring more innovation and
technique to attract the customers towards the stability of the company. The disadvantage
of choosing this cash budget is that if the company prepared their cash budgets and it
reflects that company had surplus cash in their accounts thus it distracts the interest of the
employees and also there are more chances of committing fraud and dishonesty of
employees in company.
Thus, in case of unicorn company uses this planning tool to analyse the actual cash
inflow and outflow and also they analyse the expenditure which is incurred by company by
dealing in certain activities (Afonina, 2015). Through this method they can manage their cash
transaction in more effective way. For e.g. If company is planning to expand their department
than proper cash is required to bring more resource such as tables, chairs, technology systems,
more internet connection and also the salaries paid to them, is also increased thus company make
proper budget regarding every activity which is to be used to carry forward their activity.
 Break even analysis: In this tool mainly company came with such procedure where they
earn no profits and no loss and they commit all such activity by not harming any
department in company. The main advantages of choosing this planning tool is that this
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helps company to be finally stable. As it predict the company to forecast their future
losses and thus they make the strategies accordingly by not facing any loss in near future.
They can previously examine the happening which is to be incurred at the time of
investing in such project. The Major disadvantage is related to facing in variable cost as
they prefer to buy the lower products which results in not estimating the fixed cost in
company (Tapping and Shuker, 2018). Thus, Unicorn company prefer such planning tool
to maintaining the stability of the company in market by carrying the business in no profit
and no loss in market. For e.g. If company is investing in new product they make budgets
according to their prior assumption by viewing than company can earn no profits and no
loss in such products.
TASK 2
PART 1
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Absorption costing:
Absorption costing is that method of calculating the profits for the business where the
the manufacturing fixed cost is treated as the unit cost and is deducted from the sales revenues
along with all variable expenses related with productions. This treatment lead to increase the
profits of the company due to allocation of a fixed cost into unit cost of the business.
Particulars May
June
Sales 400000 10.5 4200000 360000 10.5 3780000
Less: COGS (refer
working note 1) 1900000 1710000
GP or NP 2300000 S 2070000
Marginal costing:
Particulars May June
Sales 400000 10.5 4200000 360000 10.5 3780000
Less: COGS (refer working note 2) 1300000 1170000
Contribution 2900000 2610000
Less: fixed overhead cost 600000 600000
Net profit 2300000 2010000
Working notes related to cost of goods sold
1. Absorption costing’
Particulars May June
Opening stock 0 0 0 0 0 0
Add: purchases 400000 4.75 1900000 400000 4.75 1900000
Less: Closing stock 0 0 0 40000 4.75 190000
COGS 1900000 1710000
2. Marginal costing

Under the marginal costing methods the products are reached as deducting the variable
cost and then deducting the total fixed cost of the unit produced from the contribution to reach
the gross profit of the business. In the no fixed production cost is charged to the unit cost rather it
is allocated to the overall cost to reach the profs which gives lesser profits as compared to profits
under absorption costing.
Particulars May June
Opening stock 0 0 0 0 0 0
Add: purchases 400000 3.25 1300000 400000 3.25 1300000
Less: Closing stock 0 0 0 40000 3.25 130000
COGS 1300000 1170000
PART 2
Analysis of financial statement of Tesco Plc:

Balance sheet