Management Accounting Report: Tesco Supermarket Analysis

This report provides a comprehensive analysis of management accounting principles and their practical application, using Tesco, a major UK supermarket chain, as a case study. The report begins with an introduction to management accounting, emphasizing its role in financial analysis and organizational decision-making. It then delves into various management accounting methods, including profit maximization, efficiency boosters, inventory management, cost accounting, and price optimization, illustrating their significance for Tesco's operations. The report also examines essential requirements of management accounting systems, such as the relevancy, measurement, and accuracy of information. Furthermore, the report explores different methods used in management accounting reports, including budget reports, cost managerial accounting reports, and performance reports. The report also examines income statements, the use of marginal and absorption costing. Lastly, it discusses planning tools used for budgetary controls, such as capital budgeting and cash budgets, and their importance in achieving organizational goals. The report concludes by summarizing the financial problem, and how the enterprises adopted the management accounting system.

Management
Accounting

Table of Contents
Introduction.................................................................................................................................................3
Main body....................................................................................................................................................3
P1 Analyzing different types of management accounting and its essentials.............................................3
P2 Methods used for management accounting report..............................................................................5
TASK 2.......................................................................................................................................................6
P3 Income statement with use of marginal and absorption costing..........................................................6
TASK 3.......................................................................................................................................................8
P3 Planning tools that are used for budgetary controls and their importance...........................................8
TASK 4......................................................................................................................................................11
P5 Solving the financial problem, enterprises adopted management accounting system.......................11
Conclusion.................................................................................................................................................14
REFERENCES..........................................................................................................................................15
Books and Journals:...............................................................................................................................15

Introduction
Management accounting is a systematic approach for measuring and analyzing
organization's account and its financial needs (TTY Alabdullah). Every organization needs a set
of its budgets, profits and expenses in a one form of accounting. Management accounting focuses
on preparing budgets and financial records to better go through with the operational function.
This report is based on Tesco, a largest supermarket store in United Kingdom which deals in
groceries, household products, and other consumer goods. This report consist all the information
regarding accounting analyzing of Tesco by examine its importance and by analyzing its types
and methods. Also, use of cost accounting techniques in order to prepare profit statements to set
business objectives, plans and policies.
Main body
P1 Analyzing different types of management accounting and its essentials.
Management accounting is an essential and vital sources of indulging firms data into a
systematic approach. This includes analyzing and identification of required funds or investment
which an organization needed to much focus on. There are various accounting methods that
through which financial report of the company has been made from the month start to month
end. These financial accounts assist an organization to make effective plans in accordance with
the requirement of operations (NG Hapuarachchi, A Amarasinghe – 2019)s. Tesco used its
accounting methods every financial year by using required method in order to promote working
towards its goals of achieving maximum profit satisfaction. Also, accounting evaluates cost
effective techniques which could minimize the cost of product and maximize the output.
There are number of management accounting methods that are relevant the most
appropriate tools for business accounting and describes the main aim of the organizations
criteria, by acknowledgment of these methods an organization proves to be better result in
upcoming years. Through which Tesco achieve its goals and objectives. These are described
below.

Profit maximization: Management accounting enables the organization to maximize its profit
by analyzing its cost, risks, return into the products by preparing financial accounts for the whole
year. This could help by comparing actual current business performance and productivity from
past performance to set targets of achieving high profit potential. Tesco has achieve its objective
to attain 10% increment in profit every year.
Efficiency booster: management accounting works as a efficiency booster in business operation
towards profitability and productivity. By analyzing actual position of the company in terms of
high profit or situation of loss, employees works with great efficiency as this results in employee
welfare, bonus, extra rewards and much more. Employees of Tesco enjoy high benefits which
make them motivated towards efficient production.
Several systems undertake in management accounting.
Inventory management system: It is a crucial and important part of management operation.
This includes maintenance of stock and as per the sales and demand of the product. Inventory
includes raw material, semi-finished goods and work in progress items. By maintains records of
inventory Tesco promote effectiveness and efficiency.
Cost accounting: It is also a significant element of accounting. It enables the functions of
reducing cost and increases profits and returns. It helps in managing data of cost into different
product segment in Tesco. This could be done through break-even analyze, marginal costing
techniques, this accounting function helps to identify occurring expenses as cost and implement
required technique to reduce it a maximum level.
Price optimization system: This termed to be most powerful factors amongst all. As this
method influence on the customers behavior and market response to product pricing. For this
instance, the organization must analyze customer preference and durability of the product,
through which effective pricing policies needs to be develop.
Job costing system: job costing includes various types of cost involve in various activities to
workforce which indeed needs to be effective. This enables actual expenses and revenues of the
organization. Tesco managers prepare various costing techniques to provide good quality product

at cheap prices. This helps the organization to actively participate in product diversification
activities by making effective job costing system.
There are some essential requirements that of management accounting system that are
mentioned below:
 Relevancy of information: It is very important for the organization that they should use
relevant information for making management accounting. Because irrelevant information
give wrong information when management involves in decision making process.
 Measurement of information: The information that involve in management accounting
should be measurable so that judgment can be pass easily and accurately.
 Accuracy of information: It is necessary for the management that they use accurate data
rather than false or on assumption basis. Because it destroy the quality and give wrong
decisions.
P2 Methods used for management accounting report.
Management accounting report is as similar as accounting procedure in order to maintain
systematic record of accounts and implications of policies. Tesco uses various methods of
management accounting report for its organization. These are discussed below:
Budget report: This method is helpful in preparing budgets for each and every segment of
business organization. In order to regulate prepared budgets into each department to plan action
in according to the set of its criteria into the plan. Tesco prepared an effective budget plan for its
every outlet and every department, so that product would be finalized into effective cost
practices. Also, this organization follows all of its pricing strategies whether in production or
retailing
Cost managerial accounting report: This method enables an organization to prepare its cost
management. The cost which is affected by selling different product and services in order to
make profit. This cost may include promotion cost, discounted or other packaging cost during the
sell of product. Tesco prepares effective cost managerial techniques which by providing its
quality product less than one roof at costumers easy reaches. This eliminates wasteful and
unwanted cost during the selling or promotion (Y Izmailov. And. et. Al. 2020).

Performance report: It is the most important report of all. This includes the performance level
of employees in the organization by comparing it with present performance to past performance.
This report work as a guide, moves workforce towards the path of success and achieve targeted
goals which in respect of organizations favor. Performance check is a vital concept in every
field, as this improves individual’s ability and affinity towards its work done. The managers of
Tesco regularly generate this report in order to work on needed areas for employee’s
development as well as organizations growth.
From the above report, it is well examine that manages must evaluate these models and
reports for better analyzing business situations and its required field, by choosing relevant
options as per the demand of customers and pricing policies. The above mentioned systems of
accounting are indeed the most effective for an organizations growth and consistency.
TASK 2
P3 Income statement with use of marginal and absorption costing.
Income statement:
Income statement is a statement used in the management accounting for identifying and
analyzing the current financial position of organization. It reports the financial position of the
company with other two important statement that are cash flow statement and balance sheet
statement. In earlier time it is also known as profit and loss account that maintained by
accountant in their respective statements. In the profit and loss account or income Statement
Company focuses on expenses and revenues of the organization which are in monetary terms. It
is one of the important financial statements that show the real position of the company in the
market. It can be calculated from the subtraction of total expenses with total revenues. Total
revenues are the sum total of non operating and operating revenues (RM da Silva Laureano) (B
van der Kolk ). Revenues is not similar to receipts they are different from the receipt. Receipt is
not recording in the income statement where as revenues are recording in the income statement.
Income statement provides valuable and measurable recording of transactions that are important
for companies operations. Income statement is very important for the company's real position
which is submitted to the Securities and Exchange Commission. Income statement is the base of

balance sheet because without income statement balance sheet cannot be prepared. When
balance sheet designs it requires the surplus or loss of the company which can be obtained from
income statement. So it is very essential for companies to make income statement of the
company.
It is one of the important function that perform by the accountant of company. Tesco
international company that needs to maintain or prepare the income statement for showing
profits and losses to the audience. It is the way or means that used by the companies for knowing
the exact profitability of organization. Income statement gives benefit tu companies as well as
customer also. Income statement includes all the transactions which are in monetary terms. It
does not include non monetary transaction.
Absorption cost:
It is one of the types of cost that is used in the managerial accounting for capturing all the
cost that are related to a particular manufacturing product. It includes direct or indirect cost such
as direct labor, direct material, insurance and rent. It is required by GAAP which is the acronym
of generally accepted accounting principles. Absorption cost is not similar to variable cost it is
different from that. Because it determine the fixed cost to each unit in the manufacturing
products. It is also known as full costing, because it also includes fixed overhead cost. There is
difference between variable costing and absorption cause because variable cost does not include
fixed overhead and whereas absorption cost include fixed overhead.
Marginal cost:
Marginal cost is the change which occurs from producing of each additional unit in total
production. It can be calculated from the division of changing in production cost through change
in quantity. The main purpose of calculation of this cost is to identify the point at which
organization obtain their economies of scale. The producer can gain profit in the situation of
when the marginal cost is less than per unit price.

TASK 3
P3 Planning tools that are used for budgetary controls and their importance
There is number of ways or means that are used for control of budgets in the managerial
accounting. There are very tools and techniques used by the companies for budgetary control.
These can be a capital budgeting and cash budget. These are the planning tools that can be e use
for the achievement of objectives and goals of organization. Every organization used these tools
for their effective functioning of operations in organization. Tesco used planning tools for the
achievement of their goals and targets. These tools are very essential for identifying the amount
allocated for particular investments. The detailed description is mentioned below:
Capital budgeting:
Capital budgeting is a tool that gives the right choice of selection of investments that add
values to the company. It includes purchasing of an asset for example, purchase inbox machinery
and equipments, lands for the organization. With the help of capital budgeting, the investor can
identify risk with rate of return through the selected project. It helps to choose right project for
the company that gives additional value. In the capital budgeting process there are three main
approaches that is used by companies. Three approaches are internal rate of return, payback
period and net present value. With the help of these three approaches investor can identify return
with the proper calculation of risk. It also can identify the net present value in the future on that
time when they get return. It gives the exact calculation of return which is beneficial for the
investor to invest in the project. It is very helpful for the investors who don't have any knowledge
about the market trend so it the application of this tool, investigate all relevant information which
are needed for the investments. Tesco is the large corporation, that needs or require these tools