Management Accounting Report: TATA Motors Financial Analysis

This report provides a comprehensive analysis of management accounting practices within TATA Motors. It begins with an introduction to management accounting, its essential requirements, and a comparison with financial accounting. The report then evaluates different types of management accounting reports, including job cost reports, inventory and manufacturing reports, and accounts receivable reports, highlighting their importance in strategic planning and operational efficiency. The report also explores various management accounting systems, such as inventory management, job costing, and price optimization. The report further delves into the application of absorption and marginal costing techniques and analyzes the use of planning tools for forecasting and budgeting. Finally, the report examines how management accounting systems can respond to financial problems, analyzing financial issues and evaluating the role of planning tools in resolving them. The report concludes by emphasizing the importance of management accounting in enhancing organizational performance and decision-making.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Management accounting and its essential requirements...................................................3
P2 Evaluation of the three different types of management accounting reports......................6
M1...........................................................................................................................................7
M2: Different types of accounting techniques.......................................................................7
D1: Critically evaluation on how management accounting system and its reporting can be
integrated within organisational process................................................................................8
TASK 2............................................................................................................................................8
P3 Application of absorption and marginal costing techniques.............................................8
M3 Analyse the use of various planning tools and its application for forecasting and preparing
budgets..................................................................................................................................11
D2 Data Interpretation..........................................................................................................11
TASK 3..........................................................................................................................................11
P5 Application of management accounting system to respond financial problems.............13
M4 Analyse financial problems, management accounting lead organisations to make success
..............................................................................................................................................14
D3: How planning tools for accounting respond appropriately to resolve financial problems15
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is a tool which assists the manager of organisation about better
planning of different aspects which ensures higher control over their business operations. It is
refers as the process which involves the aspects regarding identifying, measuring, evaluating,
interpreting and communicating information which is directly or indirectly related to
organisation and contributes in accomplishment of organisational objectives. Application of the
different accounting systems provides opportunity in improvement of the understanding of the
different departments through which their support is ascertain in the completion of common
objectives of organisation. There is huge importance of these systems in the process of providing
effective response to financial issues which results in loss. This will provides the opportunity is
to make the internal structure more strength and reliable. TATA Motors is global brand which
manufactures different utility vehicles according to the needs of customers (Albelda, 2011).
In the present report explain about, application of management accounting systems to
gather different information about organisational performance along with their requirements and
various kind of management accounting reports and their importance. Also, advantages and
disadvantages different kind of budgets and contribution management accounting systems to
respond financial issues.
TASK 1
P1 Management accounting and its essential requirements
Management Accounting: It is important concept which is used by the managers of
TATA Motors is adopt the principles of accounting to improve their information before taking
important decisions in relation to the different matters of organisation. This will helps them to
perform control functions in adequate manner. It is stated by AICPA that the practices of
management accounting used mainly in three area which includes strategic, performance and risk
management.
Definitions
According to IMA, Management accounting is important profession which contributes in
decision-making, planning and management of performance in effective manner. The different
provisions also provide expertise in financial reporting and controlling functions which assist in
the formulation of effective organisational strategy.

According to CIMA, management accounting is the process of identification,
measurement, analysis, preparation, accumulation, interpretation and communication of
information which is used further by the manager of organisation regarding planning and
controlling of different aspects of organisation (Arroyo, 2012 ).
Difference between management and financial accounting
Management Accounting Financial Accounting
This concept helps in internal management It is used regarding providence of the
periodical reports about their financial
performance to owners, creditors and
government
It is related to making of future plans and
policies which assist the employees in
performance of different function in
appropriate manner
The more emphasis is provided to historical
records
These system has limited coverage as it
includes the preparation of different reports in
respect of the performance of departments
This will deals the business as a whole
It is not compulsory adopted within the
organisation in voluntary basis
It is statutory for every business
Functions of management accounting
TATA Motors is branded vehicles company which provides different style of vehicles
according to need of different segment of society. The different types of vehicles which are
provided includes SUV, MUV, hatchback etc. They customised the vehicles according to the
local conditions and perform their work with high standards of quality, safety, environment
norms etc. Implementation of management accounting systems helps to accomplish standards
which are defined about regarding their vehicles through performance of four major functions
through the support of these systems (Baldvinsdottir, Mitchell and Nørreklit, 2010). Such major
functions are defined below:
Planning: It is the process of formulating short and long term plans which assist the
employees of TATA Motors to attain particular end. It is financial planning which shows about

the procedure regarding acquirement of different resources and their application in different
departments over the specified period of time. Management accounting plays an important role
in accounting as it provides information for decision-making.
Organising: It is the important function which is need to perform effectively in TATA
Motors for distribution of the roles and responsibilities among the employees of organisation for
accomplishment of common goals of organisation. It contributes in establishment of effective
organisation structure.
Controlling: It is the process which includes the activities regarding monitoring,
measuring, evaluating and correcting the actual performances of employees to attain business
goals and targets.
Decision-making: Application of the provisions of management accounting systems to
gather information which contributes in selection of best possible choice from large number of
alternatives. It helps to operate their day to day operations effectively (Christ and Burritt, 2013).
Different management accounting systems
TATA is manufacturing organisation which produces different utility vehicles as per the
requirements of customers. To attain the trust and loyalty of customers, it is important to
understand the preferences of customer and bring changes in their functions. It helps to build the
organisational structure more profound. Functions of different systems are defined below:
Inventory management system: This system is used within the organisation for
effective management of stock and non capitalised assets. It helps the manager of TATA Motors
is to track their different stock to ascertain the information about the availability of stock.
Integration of the different provisions of this system with organisational process contributes in
effective flow of inventory within different departments. Th two mail tools which are used in this
regard in TATA Motors includes Just in Time and ABC.
Job costing system: This method is important for TATA Motors to implement because it
manufactures different types of vehicles. This method is used by the manager of TATA Motors
to assign the cost to individuals product and keep effective track on their expenses. This method
provides the opportunity to control unnecessary costs and improve profit margins.
Price optimisation system: It is important to implement this system within TATA
Motors because it helps to attain control over the prices of their different resources. As
competition is high in auto mobile industry, need to adopt effective prices through use of this

system. It helps the manager of organisation is to assess the variation in demand at different
pricing levels.
P2 Evaluation of the three different types of management accounting reports
There are many kind of reports which are formed by the management of TATA Motors
through the information which is gathered from the application of provisions of different
systems. There is huge importance of these kind of reports within TATA Motors regarding
development of the effective strategies and plans for the guidance of employees. It provides the
opportunity regarding building of standards which are required to adhere by the employees in
performance of their different tasks. It enhance the quality of the vehicles which are produced by
TATA Motors through which they attain competitiveness in their operations. There are different
benefits which are associated with the formulation of reports which is attained by TATA Motors
in market includes high market share, high customer base, build good position in market, good
brand image etc. The different kind of reports which are formulated by the manager of TATA
Motors are defined below:
Job cost report: It is one of the important report which refers the activities regarding
identification of cost, expense and profitability of each vehicle which is produced by TATA
Motors. Such kins of evaluation helps the management of organisation is to identify the most
earning segment of vehicle where they need to provide more efforts to make them more better
and satisfy the current trends of market ( DRURY, 2013). These reports has huge contribution in
the process of controlling cost and expenses through removal of such activities which are
unusual.
Inventory and manufacturing reports: These kind of reports are prepared in the big
organisation is to make their inventory and manufacturing process more effective and efficient.
The different information which is contained by this report includes labour cost, per unit
overhead cost, wastages which are happened related to inventory etc. It enhance the decision
making power of the manager of organisation to further use this information regarding its
comparison in different assembly lines which helps in determination of the areas of improvement
which are exploited by the different departs through their bad performance.
Accounts receivable report: It is also one of the kind of report which necessary to
maintain by the manager of TATA Motors for maintaining the liquidity within the organisation
to perform their different functions effectively. Here, debtors of organisation are apportioned on

the basis of the time period from their their amount is due to pay organisation. It provides the
opportunity regarding bring changes in their credit policies to collect the outstanding amount
within stipulated period of time.
M1
Management accounting system is a part of strategic planning of the company, further it
aids in formulating effective balance sheet and controls purchasing actions. The finance
department of Tata Motors has acquired the concept of management accounting thus to look in
the matter of enhancing performance level of the company. Management accounting plays a
crucial role in decision making process of business organisations by excelling profit margins as
well as raising possibilities to make competitive place over the world. There are various
applications of management accounting, such as - Job cost report, Inventory and manufacturing
reports and accounts receivable report. in which, Job costing is contributes to remove unsual
expenses and controlling costs whereas Inventory and manufacturing reports are beneficial in
recognising the availability of raw materials in order to produce effective products and services.
At last, accounts receivable report helps to understand changes in cash inflows and outflows of
the company. By considering them, management of TATA Motors will take effective financial
decisions.
M2: Different types of accounting techniques
It has been analysed that accounting technique consists of large number of methods that
can be incorporated by companies so as to determine net operating income which can further
influence business operations and profitability as well.
 Standard costing: This is determine as an accounting and management tool that assist
company in identifying difference between standard and actual cost of commodities.
Therefore, standard costing is recorded periodically so that variations can be identified
and evaluated.
 Marginal costing: This is used for analysing computing net profitability of company that
consist of variable costs which will be required for production. Thus, through this, firm
improves net profit of organisation.

D1: Critically evaluation on how management accounting system and its reporting can be
integrated within organisational process
Type of reporting Integration with organisational process
Performance Reports Performance report supports manager of TATA
motors in planning future production according
to its companies operations.
Job Cost Reports Various activities of TATA Motors helps
management in accomplishing objectives
related with cost and its integration with
reports. Along with this , it helps in decision
making process related to pricing strategy for
minimising overall cost.
Inventory Management Reports This report emphasize on managing inventory
level effectively for improving process. This
also guides in managing manufacturing cost
while placing order. .
TASK 2
P3 Application of absorption and marginal costing techniques
Cost: It said to be the value of money which is used up in the process of manufacture
something or delivering service. In context of business, cost is the amount which is spend by the
organisation in acquisition of different types of materials which are used in the process of
production of product (Herzig and et. al. 2012). Determination of actual cost helps in fixing the
profit margin which contributes to recover their all costs from sell of products in market. The
different aspects which cost is included in total cost of product is mentioned below:
 Raw materials

 Time
 Labour
 Risk
 Opportunity cost
The costs are further classified into fixed and variable. Fixed costs are such which remain
constant over the period of time and not change with the change in the production level. The
different costs which are considered under this includes rent, depreciation etc. On the other hand
variable cost is such which varies with the change in production level.
Absorption costing: As per this method, all off the manufacturing cost are apportioned
to the units which are produced within the organisation. This will provides the cost of finished
product includes the amount which is spent upon direct materials, labour and variable and fixed
overhead. It is full costing method where all the costs are included whether fixed or variable in
nature in the total cost of product. This method of costing is more significant for external
reporting and income tax reporting. It assists the management of TATA Motors in improvement
of the long term decision making of management (Kotas, 2014).
Marginal costing: It is variable costing method which consider only variable cost in the
process of calculation of cost of product. According the provisions of this method only variable
cost is distributed to the units and fixed cost is write-off against contribution. This will improves
short term decision making power of manager of TATA Motors regarding determination of the
change in cost if one extra unit of good is produced.
Difference between marginal and absorption costing
Marginal costing Absorption costing
Apportionment of only direct cost into the cost
of product
Charging of all manufacturing cost to cost of
production whether in fixed or variable
The amount of cost which is ascertained from
the use of this method is lower in comparison
to absorption method
The cost of product is higher in this method
because involvement of fixed cost
The value of closing stock which is ascertained
from this method is lower then absorption
costing
The value of closing stock is higher

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
Finish 3000u divided by 20u = 150u 2700
Dispatch 2600u divided by 20u=130u 650
Packing boxes 2600*1 2600
Fixed overheads
Machine dep
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
Machine dep 3000u*100=30 600
Finishing dep 3000u*20u=150times 2700
Dispatch 2600u*1 2600
Fixed overheads
Machine dep 720
Finish 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
M3 Analyse the use of various planning tools and its application for forecasting and preparing
budgets
In Tata Motors, planning tools are adopted by organisation in order to have knowledge about
buyers needs. Along with this, management need to make system as per crisis which have
changes of occur in future. It will help top authority in budgetary control from future and past
trends. In this, it separate funds limit which is set by every activity in order to run proper
activities of enterprise. Along with this, risk and uncertainties have possibility in future are
acknowledged which gave advantage to administration in order to take decisions. Hence,
management can make effective use of resources as well as organise operations as per market
situations.
D2 Data Interpretation
With the help of income statement, it has been interpreted that under absorption costing
method the net profit was calculated in the amount of £364525 by TATA Motors. On the other
hand, based on marginal costing it has been calculated that net profit that was made by this
organisation was in amount of £364005.