Comprehensive Analysis of Management Accounting at Tata Motors

This report provides a comprehensive analysis of the management accounting practices at Tata Motors. It begins with an introduction to management accounting, outlining its essential requirements and functions, including planning, organizing, controlling, and decision-making. The report then examines the methods used for management accounting reporting, such as inventory control, performance reporting, and budgetary reports, highlighting their importance in cost reduction and efficiency improvements. The core of the analysis focuses on cost analysis techniques, comparing various methods like marginal and absorption costing, and evaluating planning tools for budgetary control. The report also explores the benefits and limitations of different management accounting systems, including cost accounting, inventory management, and job costing systems. Finally, it assesses how Tata Motors adapts its management accounting systems to respond to financial problems, providing a critical evaluation of the desegregation of management accounting systems and reporting. The report underscores the significance of these practices in optimizing operational activities, enhancing decision-making, and driving profitability within the organization.

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................2
TASK 1 ...........................................................................................................................................2
P.1 Essential requirements of management accounting systems............................................2
P.2 Methods used for management accounting reporting .....................................................4
M.1 Benefits of using management accounting approach .....................................................6
D.1 Critically evaluate Desegregation of management accounting systems and reporting . .6
TASK 2 ...........................................................................................................................................6
P.3 Costs using appropriate techniques of cost analysis and comparison of different
techniques...............................................................................................................................6
M.2 Use of management accounting method ........................................................................9
D.2 Financial reports that utilize for understanding business operations.............................10
TASK 3 .........................................................................................................................................10
P.4 Benefits and limitations of various kind of planning tools in budgetary control .........10
M.3 Evaluation of planning techniques................................................................................11
D.3 Planning tools to respond to financial problems...........................................................11
TASK 4 .........................................................................................................................................11
P5 Enterprises are adapting management accounting systems to respond financial problems11
M.4 Evaluation of financial problems..................................................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14
1

INTRODUCTION
Management accounting is the information through which helps the managers and
employees to perform, efficiently and effectively. Through this they can also reduce the costs of
manufacturing and production. Thus all activities and tasks runs successfully and smoothly. It
also helps senior managers to take relevant decisions regarding operational activities and other
matters, etc. (Albelda, 2011). Project discuses about the Tata motors company which is founded
in 1945. It is of auto mobile industry which sells many vehicles such as bus, sport cars etc.
Project explains about the management accounting information and essential requirements of
various types of accounting systems, different methods used for management accounting
reporting. Assignment discuses about determining costs using various technologies and methods
of cost analysis using marginal, absorption costs and the advantages and disadvantages of
different planning tools used for budgetary control. Report explains about comparison of
management accounting system in responding to financial problems.
TASK 1
P1. Essential requirements of management accounting systems
According to Batty; “Management accounting is the data in which consists of operational
records and statements and which can be provided to managers of the company so that they can
take decisions regarding all activities and tasks”.
According to Institute of Management Accountants: “Management accounting system is
system which provides information regarding financial and other statistical matters so that all
managers can take relevant decisions”.
Function of management accounting: There are mainly four functions such as planning,
organising, controlling and decision making. All these are highly essential for the company to
easily maintain their all work and activity in proper manner. With the use of this finance
manager plan an effective strategy and policy that help to manage all functions and resource
appropriately.
There are various functions in Tata Company. First is Presentation of data in which
management accounting system provides data in a proper manner and opt provides information
related to balance sheet and profit and loss account. Managers of Tata Company can use this data
for creation of various reports and they can also reduce the cost in different operations and
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activities. Second is forecasting in which data is provided to managers so that they can forecast
the expenses and profits. With the help of management accounting information managers of Tata
Company can forecast the expenses and reduce the cost in different operation and other activities
(Bennett, Schaltegger and Zvezdov, 2013).
It helps in increasing the efficiency of operations. Second is Analyse and interpretation of
data in which management accounting information helps in providing information related to
balance sheet and profits and loss account (Bodie, 2013). Through this managers of company can
easily analyse the expenses and can compare the data of previous years. Hence they can compare
the expenses and tries to reduce the cost so that it increases the efficiency in different operations.
Third is decision making in which management accounting system provides information about
different records and statements. It helps the managers of Tata Company to analyse and interpret
the data. After interpretation they can take decisions in which activities they has to invest so that
they can earn more profits. It also helps the managers to reduce the cost and increase the
efficiency in operations. They can also create reports monthly, quarterly daily and weekly.
Basis Financial accounting Management
Meaning This is the process which
helps in giving information
related to financial statements
and it helps the manager to
evaluate the financial position
of the company.
It is the information which can
assist the managers to create
different strategies and policies
so that manager can take
decisions and business can run
smoothly and successfully.
Objective It provides information to
outside parties such as other
shareholders and managers.
It helps the management and
manager so that they can
relevant plans and strategies
related to management
decisions.
User It provides information to
external and internal users.
Internal includes the managers
and employees, suppliers etc.
This system only provides
relevant data to the internal
users such as employees and
managers etc.
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External includes customers,
manager of competitor
companies.
Information It provides data related to
monetary terms and not the
non-financial matters
It provides information related
to monetary and non-monetary
data.
There are various management accounting system. First is Inventory management system
in which Tata Company can use inventory management system to properly manage the inventory
in the firm (Boyns and Edwards, 2013). They try that there is no overstocking in which there are
wastage of resources and no under stocking of goods required to manufacture of vehicles.
Manager also try to reduce the operating and carrying costs so that it increase the efficiency in
system. Through this it reduces the costs of all activities and all tasks can run smoothly. Second
is Cost accounting system which is system which helps in determining the costs of all activities,
tasks and products. Thus manager of Tata Company can determine the costs and expenses of all
activities and can reduce the costs through different methods and techniques.
Through this all activities can run successfully and smoothly. Through this method
manager can also create plans and policies to forecasting ion future and can reduce the costs of
labour and other activities. It increase the efficiency in business operations. Third is Job costing
system in which, costs of all jobs are determined. All costs are added and then total costs of all
activities are determined. Manager of Tata Company tries to reduce the costs of different jobs in
company. It is done so that all costs can be reduced and it increases the efficiency in business
operations. Hence it increase the efficiency of all the activities. It also generate more profits in
company.
P2. Methods used for management accounting reporting
There are various methods for management accounting reporting included in every
company. It is used that managers can determine the costs and profits. They can take decision to
reduce the costs and to increase efficiency in all activities (LiaoChu and Hsiao, 2012). Methods
used by Tata company are-
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Inventory control report which helps in providing information related to the management
of the inventory. Various techniques such as EOQ is used by the company in which firm can
decide optimum quantity of goods produced in the firm. Thus manager of Tata Company can
determine right quantity of goods (Lukka andVinnari, 2014). It also shows the problems related
to under stocking and over stocking problem. In under stocking the vehicles are not available to
consumers at proper time. Thus they reduces the revenues in the firm (Burritt, Schaltegger and
Zvezdov, 2011). In overstocking there is wastage of resources and vehicles. Hence it increase the
costs of all activities and goods.
Performance reporting: This also reduces the profits of all business. Through analysing
this information manager can reduce the ordering and carrying costs of all business (Macintosh
and Quattrone, 2010). Hence through this report they can increase the efficiency in operational
activities and tasks by reducing the unnecessary costs. There is another method which is
Budgetary report helps in forgiving information related to expenses and profits in a particular
year(Dillard, 2014) Through thus report managers can compare the actual expenses and profits
of current year with last year.
Job costing report: Thus they can reduce the expenses in all activities. Through this,
manager of Tata Company can invest in these activities where company can earn more revenues
and can reduce all costs in different tasks. Hence they can reduce costs in tasks. As a result all
activities can run smoothly and successfully. It increase the efficiency and effectiveness of all
operational activities in Tata Company. Thus firm can earn more revenues through this
information. They can also expand and diversify the business in minimum time. Third is Job cost
report shows the costs of all the jobs thus determines the profits earned by all the jobs.
Some jobs are crucial and some are less important. So company can determine all jobs
which are very profitable and which increase the costs. Manager of Tata Company can solve all
issues of staff members so that they can perform well and thus increases efficiency of all the
activities (Otley and Emmanuel, 2013). They can reduce the total costs of all jobs by investing in
all activities which can give more revenues. Manager can take decisions related to investing in
profitable activities. Hence it reduces expenses in all activities and all tasks can run smoothly and
successfully. Thus firm can earn more profits. It also helps the managers to take various
decisions.
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M.1 Benefits of using management accounting approach
Types of accounting system Benefits
Cost accounting system  This will find out the costs in different situations
through applying various system and tools of costing.
 To find out selling prices in different circumstance.
Inventory management
system
 It will support as well as enhance accuracy of stock
orders.
 It cam be apply in Tata company in order to create more
organise warehouses.
Price optimisation  It is also applied in order to evaluate whole perception
of clients regarding price of cars produce by TATA.
 Give more reasonable prices to different person as per
the demand.
Job costing system  Accessibility support client or many other investors to
understand more regarding business financial position.
 TATA can be implement this accounting system by
dividing the job in multiple sections.
All these accounting system are essential and important for the Tata Company to
maintain their inventory management system. It will also help an enterprise to achieve better
results and outputs within predetermined time period. Job costing system is also useful for the
company because it help them to collect accurate records of business. It will also help them to to
record all information and data timely which will assist an organisation to achieve better results
within predetermined time duration.
D1. Critically evaluate Desegregation of management accounting systems and reporting
It has been analysing that reporting and accounting system applied to give valuable data
regarding the actual position of Tata Company. It is essential for the accountant in order to make
accurate data regarding about both of them or its group action. Management accounting system
and reporting has positive and negative impact on Tata Company. In case of positive effect,
management reporting and accounting help them in forecasting future, cash flows and so on.
Under, negative impact, intuitive decision, lack of coordination and continuity may be faced by
management committee of TATA company. The phenomena of related among these two
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essential aspects within an enterprise process is determined to be integrated accounting system. It
is followed to give standardised activity for recording different transaction and apply of finance
in an effective manner.
TASK 2
P3. Costs using appropriate techniques of cost analysis and comparison of different techniques
Management accounting helps in reducing the costs of every business (DRURY, 2013).
Comparison of marginal and absorption costing are-
Marginal costing – It emphasises on additional expenses in creation of product.
Absorption costing – The costs that is fixed and variable are included in this costing method
(What is absorption costing, 2017).
Basis Marginal costing Absorption costing
Cost recognition It consists of fixed and
variable costs. Fixed cost is
recovered in period. While
fixed costs is knows as period
costs and variable costs is
regard as product costs. Fixed
cost cannot be divided in all
activities as they are to be
recovered in period and not in
short time period.
It consists of only fixed costs.
Fixed cost and variable is
regarded as products costs.
Overhead classification They are classified as fixed
and variable costs. They assists
other managers in different
functions such as marketing
and other sections in company.
They are classified as
administration, production and
classification. They help other
managers in function such as
production.
Profitability Company can determine profit
through ratio known as profit
volume ratio.
Firm earns less profits as there
is fixed costs so hence there is
no ratio to calculate net profits
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Cost per unit If there differences between
opening and closing stock and
it do not affect the cost per
unit.
If there are any different
between opening and closing
stock then it influences the
costs per unit of products.
Cost data Costs data is presented in
manner so that total
contribution in each product
can be find.
It is presented standard
manner.
Income Statement as per absorption costing:
Selling price £35
Unit costs
Direct materials £8
Direct Labour £5
Variable Production overhead £2
Variable sales overhead £5
Budgeted production for the period is 3000 units
Actual production for the September is 2000 units
Fixed costs for the month are given below
Budgeted cost Actual cost
Production overhead £15,000 £15,000
Administration cost £10,000 £10,000
Working 1: apportioned of fix cost per unit
£25000/2000=£12.5 per unit
Working 2: Calculate full production cost
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Direct material £8
Direct labour £5
Variable cost £2
Prime cost £15
Fixed cost £12.5
Total £27.5
Working 2: calculate value of inventory and production
Opening inventory Production Closing inventory
0 2000*27.5 = £55000 500*27.5 = £13750
Working 3: under/ over absorbed fixed production overhead
Actual fixed production: £25000
Fixed overhead: £25000
Total nil
Net profit using absorption costing £
Sales £52500(1500*35)
(-) Cost of Sales:
Opening inventory 0
Production £55000
Closing inventory (£13750)
Total cost 41250
Net Profit £11250 Income statement as per marginal costing:
Working 1: Calculate variable production cost £
Direct material 8
Direct labour 5
Variable production 2
Variable production cost 15
Working 2: Calculate value of inventory and production
Opening inventory Production Closing inventory
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0 2000*15 = 30000 500*15 = 7500
Net profit using marginal costing £
Sales 52500
Less Variable costs
Opening inventory
Production 30000
Closing inventory (7500) (22250)
Variable sales (10500)
Contribution 12000
Less Fixed costs
Fixed Production overhead 10000
Selling & admin cost 10000 (12000)
Net Profit nil
From above calculation it can be find that in absorption costing fixed costs are 4100 and
total costs of production is 23650 and gross profit are 497105.7. In marginal costing costs of
production is 19550 and gross profits are calculated as 495044.23. Hence company can adopt the
absorption costing as profits are more as compared to absorption costing (Petty and et. al., 2015).
M2. Applying management accounting method
Management accounting is important for company to accomplish objectives and goals.
Various methods are used by Tata Company to achieve the predetermined objectives and
financial stability. Main focus is applying the monitoring tools and techniques so that all
resources can be handled in effective manner. Marginal costing and absorption costing are used
to evaluate the financial performance of organization.
 Marginal costing tools: It is an effective accounting techniques that helps to determine
the cost extra cost incurred due to extra production. This can be applied by Tata motors
by analysing the manufacturing cost and compressing the net profitability of an
enterprise. It is required to replace existing accounting techniques.
 Fund flow statement: Tata invested $2.3 billion in JLR subject to acquire and restructure
the business. It is required to track the funds for better implementing. Accountants should
make the fund flow statement for this investment and track each transactions by
recording in books. Preparing a proper books of accounts and recording system for
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investment funds is the best way to implementing this accounting technique with
operations.
D2. Financial reports that utilize for understanding business operations
In regards to deal with different problems that are grow in an enterprise in coming time
period they requires to make use of different costing approach. It would be make dependable
aspects to the organisation which will be important for making effective decisions towards
business process. Financial report is beneficial for the organization to increase the revenues and
profitability ratio. In order to evaluate business profit, firm used absorption and marginal costing
approach. Both techniques are used by organization to take effective and efficient decisions
related to investment and net revenues of company.
TASK 3
P4. Benefits and limitations of various kinds of planning tools in budgetary control
Budgetary control system is the system in which actual outcomes of budgetary figurers
such as expenses are compared with the standard budgetary figures such as profits (lbashir,
2013). It is important so that firm can costs and thus it can increase the efficiency in business
activities. Various types of planning tools used by Tata company are-
Planning tools: It is an efficient process in which objectives are set for company. It helps
in determining the activities and tasks which assists them to accomplish the objectives. This tool
helps to determine the form of activities and criteria for completing the task. It is more essential
for the Tata company to plan their all strategy and policies which help them to maintain long
lasting position at marketplace. Advantage is that it can give proper guidance and direction to
administer and for optimum utilization of resources. Various planning tools are used by business
managers in Tata are:
Forecasting technique: It is known as one of the main and essential process or activity of
setting calculation of upcoming past and actual information in common way for the motive of
evaluating trends. Figuring future cannot have in order to belong of handing different
information data those are monitored within an enterprise. It is extreme essential tools that
relates with the Tata' current situations for planning their forthcoming projects. It is important
concept in that Can be addressed by Managers of Tata to create plans and policies according to
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various assumptions which assists them in taking decisions. In this, historical data is used by
owner in order to decide future activities and tasks of enterprise.
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Advantages Disadvantages
It is crucial for administration to have correct
data so that company can take correct and
effective decisions.
The main motive of forecasting is to give
enterprise with accurate data to company which
can be applied in order to make better decision
about the future.
It do not give accurate and proper data to
administrators regarding various expenses of
business.
These are mainly depending on qualitative idea
which would depend on subjective inputs.
Henceforward not being capable to taken into
account as reliable and essential way
Scheduling tools: It is thoughtful as one of the essential structure way for Tata Company
to think about their future. An executives teams applied to set out some number of scenarios
cases that can support in future in order to deal with any type of issues. Managers of TATA can
uses different elements to determine various alternatives or options which are available to
achieve business objectives. Proper schedule for establishing the new £400 million engine plants
in midlands. It give guidance in functions of business and operational areas.
Advantages Disadvantages
Benefit is to help manager to gather data
regarding various alternatives which can
support in accomplishing business activities
and operations.
In regards to face different uncertainty or issue
that are happen in the business department as
prime tool to make accurate decision in coming
time.
It takes lot of time and it is a time consuming
process.
There is lack of sensible occasion that are
analysis to determine different effective
decision about future growth and success of
Tata Company.
Contingency planning tool: It consist of different sectors which would support in giving
effective and timely areas of humanitarian that assist to most essential period of time those are
originating in an enterprise. It is a type of action that is planned to assistance an enterprise to
respond at different kinds of business risks which are affecting company performance in direct
manner. It is used by Tata Company to take effective and efficient decisions. They create plans
13

and policies so that all problems and issues can be solved which directly affects the working of
organization.
Advantages Disadvantages
Benefit is to reduce the operational cost of
organization.
An effective designed plan is accountable for
facing entire type of problems those are
impacting the profitability situation of the
organisation.
It is no beneficial in all situations and hence it
is not an effective tool.
It is not easy in some type of conditions
because of their qualitative nature.
M3. Use of different planning techniques and their application for preparing and forecasting
budgets
Above discussed all planning tools are essential for the Tata company to overcome
difficult issue in an effective and easy manner. In case of contingency tool, company can easily
identify difficult situation, under scheduling techniques, business is capable to schedule their all
work and activity in a proper manner. Another is forecasting tool, which will also essential for
the organisation to forecast their budget and accomplish better results. In accordance with
different approach of monitoring budgets for a company manager require to make use of
different planning techniques. There are particular type of technique such as forecasting which is
applied to analyse total expenses and costs incurred by an organisation. Contingency techniques
are taken into account for monitoring business hazard those are originate in the department.
There are various planning tools such as forecasting, contingency and scheduling. These help the
business organization to improve the performance and profitability level in effective manner.
Through using of different techniques it can easily determine the predetermined objectives and
goals. Hence organization can earn more revenues.
D3. Planning tools to respond to financial problems
It has been analysis that business require to face different internal issue those are
originate in Tata Company. In order to monitor different implications that are connected with
budgets of a company. Forecasting techniques is applied to estimation future problems those are
impacting performance of an organisation can be resoluteness by applying Key performance
14

indicators. Various planning tools help the business manager to reduce the financial problems
and issues in proper manner. Various problems are there such as lack of capital which reduce the
profits and performance level of company. Company use different planning techniques and tools
such as contingency, scheduling and forecasting etc. to solve issues and problems.
TASK 4
P5. Enterprises are adapting management accounting systems to respond financial problems
Each and every business is facing various problems while conducting the business
activities related with managerial and operational level. These are the issues which arise because
of poor utilisation of methods and tools prescribed by the managers. The major financial issues
which are faced by an organisation are as follows:-
 Profitability: In order to earn more and more profits, TATA is doing lots of additional
expenses which is very bad for the company as it only increase the burden on the
managers and increase their stress.
 Performance and control: It is having their relationship with the financial performance
of the company in a specific period of time. Cost efficiency: It is related with the issues which is arise at the time of production
process of TATA. Here it is prescribed that the company should keep the cost of the
products low because then only they will be able to attract more customers.
 Product and service quality issue: This seems to be extremely efficient and important for
the company under which entire requirement related as per the goods could be specific.
In case of any type of issue which could have main consequences over the businesses
performance.
The various ways which can be used to overcome these issues are:-
 Key performance Indicators (KPI): It is very helpful for the company in reducing the
barriers which comes in the company while giving good performance (Jaber, 2016). To
check this, the management will do the analysis of current and past data of TATA
Company.
 Financial Governance: - These are having various rules and regulations which is being
prepared by the enterprise so as to conduct all their business activities in a proper and
effective manner.
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 Benchmarking: - Through this method the organisation tries to set the performance
standards and then later on comparing the actual performance with the set standards and
if any error is seen then it will be corrected by taking appropriate actions (Kotas, Koh and
Tan, 2011).
A comparison will be done between two companies in which one will be using lean
accounting system and the other one will be using traditional accounting system. The comparison
is done as follows:-
TATA VECTAIR HOLDING
 The approach which is being used here is
lean accounting and it is very effective in
reducing the wastage of referred
company's resources.
 Managers of TATA Company will be
able to take decisions in a fast manner
and will also be able to gain competitive
advantage in the market as well.
 Allocation of financial resources among
manufacturing units is the main financial
problem in front of managers of Tata. It
can use key performance indicator and
financial governance so that all activities
and functions can run effectively and
efficiently. KPI evaluates the current and
past data to evaluate the liquidity and
fluctuation among loans and
advancements. In financial governance
various rules and regulations are created
to control excess use of financial
resources so that firm can utilise the
investment in effective manner. This
helps the organization to earn more
 This company is making use of
traditional approach which is an old
method of accounting and is very
simple in operating as well.
 Here, the transactions are being
conducted in an effective manner but
it is slow as well because the finance
managers have to wait for a long time
for getting the information.
 There was lack of inventory
management was found in this
company. This enhanced the carting
cost and reduces the profitability of
organisation. Inventory management
accounting system is used by
organisation to manage the inventory
levels to retain in stores. This will
reduce the burden of extra carrying
cost and improve profitability of
company.
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profits and to increase the market share.
 Price optimisation accounting system
would be effective for company to
overcome financial losses. TATA would
be able to set the prices of car according
to customer's interest and emphasise its
profitability accordingly.
M4. Effectiveness of management accounting system subject to lead organisations by resolving
financial issues
As per the above analysis it is seen that both the organisations were having financial
losses due to lake of management in operations. Tata was facing the low profitability and high
investment cost whereas VECTAIR HOLDING was facing improper inventory management
resulting high carrying cost. As Price optimisation and inventory management system
subsequently implemented in TATA company and Vector Holding company to attain improve
profitability. This will enhance a sustainability of organisation.
CONCLUSION
It can be concluded from above report that management accounting is important for every
company. Management accounting information and essential requirements of management
accounting. Different use of planning tools in management accounting. Comparison if ways in
which management accounting solves all financial problems. It is summarises that management
accounting system are not only essential for better management but also provide a sustainable
base by resolving financial issues.
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