Unit 5: Management Accounting Report: Tesco's Financial Strategies

This report delves into the application of management accounting within Tesco, a major player in the retail industry. It begins by defining management accounting and its crucial role in strategic decision-making for enhancing performance. The report then explores various management accounting techniques employed by Tesco, including financial planning, standard costing, and budgetary control, and describes three key planning tools: zero-based budgeting, activity-based budgeting, and flexible budgeting. The advantages and disadvantages of these planning tools are evaluated. A comparative analysis of management accounting systems between Tesco and Marks & Spencer is presented, highlighting the differences in their approaches. Furthermore, the report examines how management accounting planning tools contribute to Tesco's sustainable growth and identifies the role of management accounting in addressing financial problems. The report includes the creation of absorption and variable costing for Tesco and determines the profit within each method. Finally, the report concludes by summarizing the key findings and their implications for Tesco's financial management.

Unit 5: Management
Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
1. Explaining management accounting and its importance in decision making process for
improving performance................................................................................................................3
2. Explaining different types of management accounting techniques for Tesco......................4
3. Describing three different planning tool to ensure financial stability and role of MA in
overcoming financial problems....................................................................................................5
4. Explaining Advantages and disadvantages of planning tools for Tesco..............................6
5. Comparing management accounting systems used by Tesco with Marks and Spencer.......8
6. Explaining how management accounting planning tool would help Tesco to obtain
sustainable growth........................................................................................................................9
7. Describing MA in identifying financial problems and ways to overcome............................10
8..................................................................................................................................................11
CONCLUSION..............................................................................................................................13

INTRODUCTION
Management accounting helps manager to identify, analyze and communicate
information to attain the business goals. The chosen firm for this study is Tesco, deal in
supermarket within retail industry. Further, the study will explain different types of management
accounting techniques and determine planning tools to ensure the financial stability. Also, study
will describe management accounting systems by comparing with other organizations. Then it
evaluates how management accounting planning tools would help Tesco to maintain sustainable
success. Moreover, it prepares absorption and variable costing for the two quarter of Tesco and
determines the profit within each method.
Main Body
1. Explaining management accounting and its importance in decision making process for
improving performance
Management Accounting (MA) helps business to identify, analyzing and evaluating
financial information for accomplishing business goals in effective manner. Tesco being an
international organization need to maintain proper managerial information for obtaining effectual
decision making skill. There are various reasons for which it becomes essential for company to
use MA are mentioned below:
Helps in making strategic plans
MA play crucial role in determining suitable course of action which can aid company to
obtain better end outcomes (Burritt and et.al., 2019.). In current scenario it is important for
organization to formulate appropriate plan through available information in turn unforeseen
circumstances can be tackled and achieving quality in operational activities of Tesco.
Measuring Performance
It examines and evaluates efforts of each department and employees. In addition to this,
comparison of actual performance with estimated can be entered which aids Tesco to improve its
prevailing strategies for increasing results.
Enhanced efficiency

Setting targets for each division and analyzing outcome attained gives assistance to
Tesco. Company as being part of retail organization requires right allocation of resources in
appropriate proposition gives assurance in attaining efficiency. MA plays role in determining
required financial and other resources for accomplishing set targets.
Raises profitability
Management accounting techniques can be utilized by Tesco for fair price determination
of products and services offered by company. Quality customers service can be delivered with
help of adequate estimation of company’s products value. This ensures firm to have sufficient
profitability to conduct business practices (Kostyukova and et.al., 2018).
Provides Reliability
MA helps company to achieve reliability in decision making processes. Tesco can obtain
relevant information through utilization of management accounting tools and preparing various
types of reports which can resource firm to make strategic decisions.
2. Explaining different types of management accounting techniques for Tesco
There are several techniques that are utilized by organization for smooth functioning of
company’s activities. The suitable techniques for Tesco are as follows:
Financial Planning
Every type of company whether it is small, medium and large scale require to formulate
structural plan for having appropriate road map regarding conducting operational practices.
Tesco uses this tool for estimating of required resources for production, distribution, marketing
& promotional strategies. This helps company to reach its both short as well long term
objectives.
Standard costing
Tesco can this tool into consideration for analyzing and evaluating actual expenditure,
performance, profits from estimated standards. With help of this techniques, Tesco will be able
to set highly quality standard mark which is need to attained by employees for achieving
personal & organizational development (Hiebl and Richter, 2018). Retail industry is facing cut

throat competition so beating similar firm for gaining higher desirable position can be obtained
with usage of this tool.
Budgetary Control
For moving towards right direction company need to focus on planning each segment of
operational activities. There are various types of budgets that can be created for overcoming
unforeseen challenges. In addition to this, Tesco will receive benefits like monitoring and
controlling current practices with implementation of budgetary tool.
Communicating tool
Tesco deals in various transaction for obtaining higher revenues and establishing
sustainable growth. It becomes important for Tesco to deliver each information regarding
prevailing changes in its business policies. In addition to this, employees of every department
can get clarity regarding roles & responsibilities which enterprise expects them to complete.
Higher profitability and performance can be acquired through transplant communicating
methods.
There are various other approaches also such as revaluation, statistical & graphical
presentation, decision making, marginal costing, cash, fund flow, etc. that can provide feasibility
and sustainability in carrying forward business activities.
3. Describing three different planning tool to ensure financial stability and role of MA in
overcoming financial problems
Planning is an initial stage of operational activities which provides guidance to make
smooth functioning of whole business procedure. The planning tools are utilized by Tesco are
mentioned below:
Zero Based Budgeting (ZBB)is one of the planning tool that is utilized by organization in
for establishing structural path from beginning. It analyses previous data but does not use and
information related to historical period. It is not as effective as flexible budgeting as it does not
support changing circumstances. In addition to this, it is as ell less competitive than activity
based budgeting planning technique.

Activity Based Budgeting (ABB) is widely utilized by Tesco for analyzing cost that need
to be incurred by recording summarizing and analyzing activities that lead to cost (Allain,
Lemaire and Lux, 2021). ABB is effective as compared to ZBB as it is able to record changing
figures in effective manner. Flexible budget is considered to be more effectual than ABB.
Flexible budgetary planning technique is as well taken into consideration by for
representing statically information. It adjusts with changes occur in volume of activities. Tesco is
multinational organization that deals with norms and condition of various nations’ policies. It
requires such feasible method for continuing activities in best pattern.
These all three tools are used by company to gain higher performance in terms of
profitability and stability (Honggowati and et.al., 2017). Quality performance can be attained by
Tesco through implementing this techniques in effectual way via financial planning, analyzing,
controlling and talking decisions on the basis on this information. MA play crucial role in
managing financial problems rising in company by evaluating appropriate technique in
overcoming company’s issues related with lack of funds, improper management of resources,
etc. benchmarking can be used by Tesco as approach for handling problems related with
declined efficiency.
Mispricing strategy, increasing cost of production, lack funds sources, raising loans, etc
are some of the financial issues that Tesco may face in industry. Management accounting plays
role in overcoming these hurdles with help of budgetary control (What is management
accounting? 2021). Deviation identification and reduction of cost related with production can be
exerted by given emphasis on declination irrelevant values that are becoming barrier in
increasing profit margins. Frauds and errors can be laminated by concentrating on prepared
planning structure.
4. Explaining Advantages and disadvantages of planning tools for Tesco
Zero based budgeting
Tesco can obtain various benefits and drawbacks from implementing this particular
tactic in its operational activities.
Advantages Disadvantages

 Tesco will get accuracy in computation
of actual cost regarding each
department.
 It is complex as requires time for
implementing in Tesco.
 Efficiency in business procedure will
be obtained through allocating
resources according to requirement lead
to quality performance.
 Lack of expertise can force
organization to bear cost on providing
training and development to related
staff
 Coordination and communication in
each functional area encourages
workers to share their full potential.
 High manpower requirement is needed
in ZBB
Activity based Budgeting (ABB)
Tesco is an international organization which needs competitive advantages for dealing
with global competitors. Company need to derive various resources for achieving it. The tool that
can give assistance has following pros and cons:
Benefits Drawbacks
 Tesco can acquire each branch as single
business unit by implementing this
specific technique.
 Deepest understanding is required to
formulate this plan of action
 For sustaining in market Tesco requires
differentiate planning tool which can
lead organization towards success. It
can be considered as path for achieving
this (Miller, 2018).
 Short term goals & objectives can be
achieved with ABB
 It involves each step of business that
gives overall view in turn eliminating
irrelevant activity becomes possible.
 Resources are highly consumed which
also involves cost increasing.
Flexible Budget

Pros Cons
 Cost variance can be analyzed by Tesco  Skilled labor is required for
formulating flexible budgets which can
enhance expenses of Tesco
 Operational efficiency is easily
assessed with usage of flexible
budgeting
 Forecasting may not be accurate in
predicting future will lead to wrong
formulation of business policies.
 Better profit planning becomes possible
by declining expenditures
 Wrong accounting information may
result in mislead budget
5. Comparing management accounting systems used by Tesco with Marks and Spencer
Management accounting systems helps to track the cost linked with production of goods
and services within firm. There are different types of management accounting systems used by
companies which are as mentioned below:
For Tesco
Cost accounting systems: It is the system used by the Tesco in order to estimate the cost
of their product in order to determine the profitability analysis as well as inventory valuation.
With the help of such system, manager of a company determine the actual cost link with
manufacturing a product by considering all expenses within its supply chain (Pervan and
Dropulić, 2019). Thus, it is done for preparing a budget and profitability analysis as well.
Inventory management systems: As Tesco deal with range of products and that is why,
there is a have proper control over inventory. For that, inventory management system has been
used in order to track the goods throughout a process i.e. from product to purchase. For the same,
company uses Lifo and Fifo method, now it uses software i.e. Ordoro in order to keep proper
tracking of their inventories.
For Marks and Spencer
Job costing systems: It is a process which involves information about a cost linked with
specific production (Sedevich-Fons, 2018). Marks and Spencer is also deal within retail industry
and that is why, all information has been shared with each department which includes direct

materials, labor, and overhead. Also, at the end of accounting period, total amount in each cost is
assigned to each job that is based upon some allocation which is constantly applied.
Price-optimizing system: It is actually used by all the companies because it calculate how
demand varies at different price levels, further manager combine the data with cost information
and inventory levels in order to suggest the best price which will also improve the profit. Thus, it
can be stated that through such retailers attain the goals that helps to increase the profit or else
lower down prices in order to improve revenue.
From this, it is analyzed that companies uses different management accounting system
because it helps them to make better decision for the company and organize the data in order to
attain the next goal (Zandi and Lee, 2019). Further, each company has their own systems which
control business operations and determine the business problem areas as well. Thus, having such
system will assist company to attain the defined aim and keep business on track.
6. Explaining how management accounting planning tool would help Tesco to obtain sustainable
growth
Stable profits and growth are main motive of every organizations therefore company
uses various approaches for maintaining sustainable growth. There are several techniques which
Tesco uses for ensuring greater profitability. The foremost actions taken for achieving
established objectives are making financial planning. Tesco uses alternative plans for meeting
with changing circumstances of industry. Specified MA tool gives assurance to company that
operational efficiency will increased for reaching decided position.
Techniques play crucial role in determining BEP for valuating that firm is going in right
direction or not. Once Tesco reaches the position revenue generating can be increased for raising
opportunities of sustainability. Performance indicator through comparing past data with current
aid Tesco know strategies are lacking or strengthening prevailing business condition (Azudin and
Mansor, 2018). This performance measurement through comparing income current financial
statement with earlier period. Proper evaluation at initial state gives enhances more chances of
improvements. Benchmarking enable Tesco to compare its present performance with
competitors. Mentioned tools are very helpful in identifying funds requirement at prior state to
obtain enough time to evaluate available options which can reduce cost of capital. Price

determination is also an advantage that increases competitive metrics for attracting customers.
Moreover, planning tools like ZBB, ABB and flexible budgets are suitable options.
Building good managerial practices with acquiring relationship with internal and external
parties help Tesco to avoid financial problems. Internal cost reduction provides guidance in s
deriving opportunities for improvement can incline both efficiency and effectiveness. In addition
to this, higher profit margin determination becomes possible to expand globalization practices.
7. Describing MA in identifying financial problems and ways to overcome
There are various problems that are severed as barrier fro company’s growth. Firm need
to overcome this issues through applying suitable strategies gives company opportunity to get
desire position in market. Financial problem need to address immediately to avoid widen up
situation. Some of these are out of control so taking proper precautions in order to handle in
sustainable manner becomes crucial for development (Căpușneanu and et.al., 2021). Framework
of cost accounting system will permit firm to evaluate job value of each task and profit related
with it. This helps organization to avoid expenditures regarding unnecessary activities that does
not contribute in gaining profitability and growth
Inventory management is important tool used by firm to decline cost of production and
increase sales margins. There are several factors related with manufacturing process one of
which important component is storage availability for inputs , WIP and outputs. For instance-
Tesco uses software for marinating warehousing facility for declining expenses for sufficient
inventory decision. This play important part in dealing with financial problems. Price
optimization system, cost and performance, reports, budgets, etc. are some of ways that can aids
company to accomplish its objectives regarding profits & stability.
Risk management technique will help company to deal with rising problems regarding
optimization and availability of funds. For example- Business uses risk reducing technique in
case of capital appraisal which assists business to decline cost of capital and increasing rate
regarding return
8.
Absorption costing

Particulars
Quarte
r 1
Quarte
r 2
Sales 66000 74000
COGS
Add: opening stock 10200
Add: Variable cost of goods @ 65% of
production cost 66300 56100
Less: Closing inventory 10,200 3,400
Cost of goods manufactured 56,100 62,900
Gross profit 9,900 11,100
Less: Selling and administration expenses 5200 5200
Net profits 4,700 5,900
Marginal costing
Quarter
1
Quarter
2
Sales 66000 74000
Add: opening stock 7800
Add: Variable cost of goods @ 65% of
production cost 50700 42900
Less: Closing inventory 7,800 2,600
COGS 42,900 48,100
Contribution 23,100 25,900
Less : Fixed expenses
Fixed overhead 16,000 16,000

Selling and administration expenses 5200 5200
Profit 1,900 4,700
Reconciliation
Particulars
Quarte
r 1
Quarte
r 2
marginal profit 1,900 4,700
Add: over observed fixed
overhead 2,800 1,200
absorption costing 4,700 5,900
Calculation of Fixed overhead of quarter 1 = 16000-(0.2*66000)
=2800
Quarter 2= 16000-(0.2*74000)
= 1200
From above prepared statements it can be interpreted that company is performing good in both
quarters by enhancing profitability.
CONCLUSION
From the above report it can be concluded that management accounting is essential for
managing company’s financial resources. The current case study ahs give emphasis on planning
tools and their utilization in business along with advantages and disadvantages. Present report
has shown management accounting system along with financial problem solving problem
solving with MA by using planning tool. It has also given emphasis on calculation of income
statement through absorption and marginal costing technique