Management Accounting: Effective Planning Tools and Financial Analysis

This report provides a comprehensive analysis of management accounting planning tools, focusing on their application within organizations to address financial challenges. The report begins by introducing the significance of effective planning tools in managing accounts, particularly within the context of Tesco, a major retail company, and its adoption of innovative budgeting strategies. It then delves into specific budgeting methods, including zero-based budgeting, operational-based budgeting, and activity-based budgeting, outlining their advantages and disadvantages. The report further explores how organizations identify financial problems using tools like benchmarking, key performance indicators (KPIs), and variance analysis. A comparative analysis of Tesco and Next PLC highlights their distinct approaches to employing management accounting systems to overcome financial issues. Tesco utilizes benchmarking and variance analysis, alongside inventory management, while Next PLC employs KPIs and cost accounting. The report concludes by emphasizing the importance of these tools in achieving budgetary control and resolving financial problems, offering valuable insights into strategic financial management.

Unit 5 Management
Accounting - Effective
Planning Tools for
Managing Accounts- A2

Table of contents
 INTRODUCTION
 Planning tools
 Comparing ways in which organisations can use MA to respond to financial problems
 Conclusion
 References

INTRODUCTION
 Effective Planning Tools for Managing Accounts are known
as highly important tools for bringing on new functional
standards within budgeting , accounting of all operations
within various management levels.
 The presentation discusses how tesco one of the biggest
retail company within industry plans up various innovative
tools for budgeting operations within company where goals
are to bring on new levels of higher investments for new
technology levels and wider reflective synergy.
 The presentation also discusses Zero based budgeting,
Operational based budgeting and activity based budgeting
with various advantages and disadvantages for Tesco where
management has to analyze various factors for competitively
building the various operation decisions.

PART A
Planning tools
 Zero based budgeting
 The Zero based budgeting can be understood as one of the most systematic budgeting
where expenses must be justified for all operations within each new period for gaining on
new levels of functional efficiency for higher technical advancement.
 It starts with zero base where every functions within company business management
analyzes various needs and various costs where the rapid technology. Zero based
budgeting at Tesco will able to develop new goals of higher effective management new
rational functional standards, which will develop wider profitability goals.

Operational based budgeting
 The operational budget contains expenditure and wide
revenue generated from daily business functions and innovative
operations within company where it concentrates on operating
expenditures, including various costs of produces sold within
market which are more effectively known as cost of sold goods.
 Tesco will be able to gain wider productive functional efficiency
with the operational based budgeting which productively
enhances new determinants an yields onto new relative
advancement within the set paradigms.
 Operational based budgeting is widely known for bringing
higher advanced functional levels which will yield onto best
productive decisions for longer time synergy and also
effectively build on cost effective parameters.

Activity based budgeting
 The activity based budgeting method is one of the most innovative budget preparing using costing after
considering all overhead expenses and costs which may come within functional parameters in development within a
project
 . This is management accounting tool which does not consider past year budget to arrive within current year budget
where tesco company leaders may feel widely effective and rationally focused with use of this technique for gaining
on new levels of advancement within budgeting the operations.
 The activity based budgeting is widely known for bringing on wider reflective synergy of innovation where every
project resources are focused and brought among operations by ethically developing new end goals within the
functional standards .

Comparing ways in which organisations can use MA to
respond to financial problems
Identifying Financial problems
 Businesses today faces issues while adapting the right business model
and strategies for responding to the various financial problems having
impact over the shareholders of the company and its success.
 The organizations are required to identify the major financial problems
with the help of the various tools so that timely and appropriate steps
can be taken for the purpose of removing these issues.

Cont..
Benchmarking
 It means implementing practices that are useful in identifying the issues which
are being faced by the organization.
 This compares the performance of the company with its competitors.
 It analyses the process and the techniques which are being used by the
competitor which is best in industry which can be implemented by the
organization like Tesco in enhancing it performance level and productivity.
Key Performance Indicator
 This indicator measures the value with respect to the effectiveness of the
company in accomplishing its desired goals within the set time frame.
 KPI’s are utilized by the business entities at the various organizational level for
the purpose of evaluating the success in reaching the desired targets.

Cont..
Variance analysis
 The variance analysis is used by the business for comparing the
actual outcomes with the standards set by the management.
 This helps the businesses in determining the deviation between
the two so that timely actions can be taken for reducing the
deviation along with identifying the reasons that causes such
deviation so that next time standards can be set considering it.
The KPI’s, benchmarking and variance analysis are used by the
businesses with the aim of identifying the key financial problems.
The potential financial issues that the businesses come across is in the
efficient and productivity of the business operation on the below
outcomes.

Cont..
Comparison of organisation in meeting the financial problems
TESCO NEXT PLC
 The MA system which is being used by the Tesco
is the benchmarking tool which helps its in
identifying the major areas which can be
considered as the strength of the company and
other as its weakness.
 It assists the management in improving the
operational practices of the business and meeting
up with the standards. Tesco’s measurement of
financial success is very critical and is very
important for managing the operational activities.
 The Next Plc takes into use the KPIs for the
purpose of evaluating its performance across
different levels and departments. It assists it in
evaluating the performance of its employees
individually and department wise for knowing
their progress and relevant changes can be made
for further enhancing the performance.
 The information provided by KPIs provides
support in determining the areas where the target is
not achieved. Based on this, certain criteria are
analysed and then the new strategies are
implemented for achieving the objectives.

Cont..
TESCO NEXT PLC
• The Tesco also uses variance analysis in
effectively controlling and monitoring it
performance level. The company also uses
inventory management system for effectively
managing its stock level for meeting the demand
customers demand on time. It also helps in
reducing its inventory handling cost leading to
increase in profitability. Using this, company
effectively implements the strategy that provides
support in clearing its stocks on time.
• Thus, Tesco uses these tools and techniques in
accomplishing its desired goals and resolving the
financial issues.
• The company also uses variance analysis for
analysing the deviation in its actual performance.
This helps determining the causes for the
difference which is further analysed, resulting into
better and improved results and the problems that
might come across can be reduced.
• The Next Plc uses cost accounting system in
managing its cost of production. It helps it in
taking measures which results into minimising the
cost of production. It provides data in respect to
the profitability of each individual product leading
to proper decision making and helping in
mitigating the financial problems.

Conclusion
 It can be concluded, MA planning tools are very useful in the business organization for the
purpose of exercising budgetary control.
 The different tools such as zero based budgeting, activity based budgeting and the operational
budgeting has their pros and cons and it can be implemented as per the business requirement.
 By comparing the two organization, a deep understanding is gained in respect to the ways the
different organization implement tactics for meeting with its business requirements and facing
its financial problems.
 Tools such as benchmarking, variance analysis etc. can be implemented which helps in
resolving the organizations crucial financial problems in an effective manner resulting into
better results.

References
 AlRababah, A. A., 2017. A new model of information systems efficiency based on key
performance indicator (KPI). Management. 4. p.8.
 Datar, S. M. and Rajan, M., 2018. Horngren's cost accounting: A managerial emphasis.
 Garengo, P., 2019. Benchmarking'. Quality Management: Tools, Methods, and Standards.
Emerald Publishing Limited. pp.91-107.
 Nikolaev, V. V., 2018. Identifying accounting quality. Chicago Booth Research Paper, (14-
28).
 Mehdi, M.N., Ihsan, A. and Bashir, S., 2019. Capital Investment Decision Making and Risk
Management Methods: Evidence From Listed Companies on Pakistan Stock
Exchange. Review of Economics and Development Studies, 5(2), pp.291-302.