Budgetary Control: Management Accounting Report Analysis

This report delves into the realm of management accounting, focusing on budgetary control and financial problem-solving within organizations. The introduction sets the stage by defining management accounting and highlighting its significance in strategic planning, using Tesco Plc as a case study. The main body examines planning tools like flexible, capital, and operating budgets, explaining their advantages and disadvantages. It analyzes the use of these tools for preparing and forecasting budgets, emphasizing their application in budgetary control. The report further evaluates how organizations adapt their management accounting systems to address financial problems, exploring concepts such as risk management, cash flow issues, and capital management. It examines various management accounting approaches, including KPIs, benchmarking, and financial governance, providing a comparative analysis of Tesco Plc and Sainsbury’s. The analysis extends to how these tools contribute to sustainable success, concluding with an overview of planning tools and their effectiveness in resolving financial challenges. This report offers valuable insights for students studying finance and accounting on Desklib.

Management Accounting

INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
TASK 3............................................................................................................................................1
P4. Explain the advantages and disadvantages of different planning tools that are used for
budgetary control.........................................................................................................................1
M3. Analyse the use of planning tools and their applications for preparing and forecasting
budget..........................................................................................................................................3
TASK 4............................................................................................................................................3
P5. Evaluate how organisations are adapting management accounting systems to respond to
financial problems.......................................................................................................................3
M4. Analyse that how to respond financial problems, management accounting can lead
organisations to sustainable success............................................................................................5
D3. Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Management accounting is the process of managing business operations and all the activities
which helps in maximising overall productivity and performances (Banker And et.al., 2018). It is
essentially required components where managers done strategic planning for the achievement of
desired goals. Tesco Plc selected for the better understating of management accounting concepts.
It is UK based Retail Company which offers their products & services all over the world. This
report covers the several topics such as use of planning tools in the management accounting and
compare the ways that how organizations utilize management accounting to resolve their
financial issues.
MAIN BODY
TASK 3
P4. Explain the advantages and disadvantages of different planning tools that are used for
budgetary control
Budgetary control is described as the mechanism for designing potential plans to increase
financial results by evaluating the company’s previous budgets. That is the instrument that
management use commonly to track and regulate the company's associated financial targets and
handle expenses within a given accounting period. Budgetary management plays an important
role in the organisation as it aims to carry out certain tasks that contribute to increasing the
efficiency and efficacy of the enterprise (Bulgakova And et.al., 2018). They also set different
targets for tracking their financial operations in context of Tesco. There are some different types
of planning tools which adopted by the company and it discussed below:
Flexible budget: It is a methodology wherein budget is altered as per production
volume changes. This method is used for calculating direct costs and cumulative expenditures in
order to get an understanding of production. This method is useful for analyzing market
achievement and loss as per the financial results over a given particular time frame. As its aid of
such a tool production can be achieved in the sense of Tesco Plc by keeping all the variable costs
in consideration. Recognition of this transition is important for changing the current strategy and
for achieving favourable outcomes.
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 Advantages: This tool is of benefit to Tesco Plc in establishing cooperation within
multiple departments and practices. Precise results can be obtained through which to
achieve the overall goal.
 Disadvantages: Too many factors at a moment which is hard for Tesco Plc to control. It
continues to evolve and causes difficulties. It is also very time consuming tool which
delayed in evaluating company’s outcomes.
Capital budget: This tool helps in preparing for their resources and long-term investment
simpler for the company (Căpușneanu And et.al., 2020). This budget is designed by Tesco Plc's
accounting department to maximize the long-term gains. This strategy is critical for
organizations that rely on making significant investments in different ventures in order to ensure
the organization's sustainability and efficient allocation of funds.
 Advantages: The risk involved with various companies’ processes and strategies can be
reduced with the aid of this. Facilitates organization, taking into account different
considerations, by making rational decisions. The possibilities for investment should be
taken into account from a long-term viewpoint.
 Disadvantages: These decisions are unpredictable and uncontrollable in long-term
period. This method used to make appropriate decisions and its result can impact on
overall productivity and performances of Tesco Plc Company.
Operating budget: It is the budget which contains all the operational costs and also the
Tesco Plc Company's operating income that will be imposed within the same period of time for
the company. Specific expenditures include acquisitions of raw goods, manufacturing charges,
interest on a loan, employee wages, etc. while net income involves revenues from the
organization's activities and earnings from the by-products' revenues.
 Advantages: With the aid of this budget, the Tesco Plc can track its gross revenue and
expenditures accurately so that they might control their actual costs along with it all,
helping them to better plan and leverage the organization's resources.
 Disadvantages: The negative effect of this strategy on the company is that it impacts the
practices in terms of effort and money because it may be prepared by the company but it
may not necessarily be expended.
Above discussed three different planning tools are used by the managers of Tesco Plc
Company for budgetary control (Choi and Byun, 2018). By using such planning tools help the
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managers to make strategies at the time of inverting into any security. In addition, it also used for
forecasting future plans for the development of Tesco Plc company in order to maximise its
production as well as profitability.
M3. Analyse the use of planning tools and their applications for preparing and forecasting budget
Budgetary management encourages concrete goals that will enable the company to
accomplish the most successful corporate objective. The fiscal management mechanisms have
proved to be particularly helpful to Tesco Plc in formulating the most effective plan that provides
a direction toward meeting its predefined goals. Tesco Plc's main resources include adjustable
schedules, running schedules etc. Flexible budget lets Tesco Plc allow the expense structure as
per various production rates. At the last capital budgeting tool used to invest in appropriate
project to maximise its earnings.
TASK 4
P5. Evaluate how organisations are adapting management accounting systems to respond to
financial problems
Financial issues negatively impact the company and its mission because it would be
unable to accomplish the project objectives. A company has to cope-up with many financial
problems from which it can effectively resolve negative impacts and increase its productivity and
growth. To this end, managers can establish so many positive effects that could be beneficial in
achieving its goals and achieving the desired goals in a preferred manner. A few of the issues
described below:
Risk management: This is a critical concept that poses a threat to survival in industry.
Businesses may pose different threats in their daily operation from which they can have adverse
impacts on competitiveness and productivity.
Cash flow problem: This form of crisis is correlated with the company's inadequate cash
pending that are unable to fulfil their daily needs and are unable to repay any obligations
(Johanson and Madsen, 2018). Tesco Plc is met with this dilemma because of high number
of creditors.
Capital management: This funding approach is used to use monetary tools in order to
reduce any lack of funds. Good budgetary control allows Tesco Plc to make full use of their
financial capital to maximize overall performance.
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Management accounting approaches:
These are defined as using accounting methods in a more comprehensive manner to
minimize and eliminate organization's internal problems. With the aid of these strategies,
administrators are able to acquire the knowledge they need so they can use their procured capital
to optimize income. Tesco Plc uses different accounting approaches to measure their success as
described below:
KPI: Key performance indicators are classified as the metric that companies could use to
evaluate company's performance in comparison with another entity that performs in the very
same business sector. KPI included inside focus on organizational roles and short-term market
priorities. It is dubbed an important strategic method for evaluating the organization's actual
results. This allows Tesco Plc to put high expectations in its service so they will earn them in
their operations.
Benchmarking: This is known as the process by which one entity's financial success is
contrasted with that of another organization in the same sector (Laing and Perrin, 2018). It is
used to analyze actual financial results, where strategies and practices are presented when coping
with rivals. Through the aid of these enhancements, Tesco Plc will determine how product
ranges can be changed according to consumer demands. This approach is useful in getting to
know how approaches match with corporate objectives.
Financial governance: It is also the process whereby an entity's financial output is
regulated, tracked and compiled inside a corporation. The company will identify problems with
the help of sound financial governance, in order to gain high revenues. Tesco Plc's finance
department is responsible for overseeing and monitors consistency of their company's financial
statements.
Comparison of Tesco Plc and Sainsbury’s:
Basis Tesco Plc Sainsbury’s
Financial Issues Key issue with Tesco's money
management is inadequate. The
expenses that occur are large for the
company of which income is being
cut. Despite of that, the organisation's
challenges are strong. The improper
Sainsbury's is facing risk
management issues as well as
unproductive cash flows. The
company has failed to
recognize their potential risk;
due to this reason company
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handling of capital causes difficulties
for the company in paying back its
investments and obligations.
faces barriers in its growth
path.
Management
Accounting
Approaches
To make an obstacle less working, it is
very necessary for the company to
solve this issue (Quinn and Hiebl,
2018). The business uses KPI to
overcome this situation by going to
compare their policy initiatives and
efficiency with their competitors in
addition to making them more
effective by continuing to work on
their strategies.
Sainsbury's uses benchmarking
methodology to address the
problems. Through addition,
the company is constructing
risk assessment plans so that
the hidden threats will be
minimized and may have
adverse consequences on the
business running.
Management
accounting systems
They also implemented different
management accounting strategies for
handling various problems
which faced by the Tesco, such as
addressing the dilemma of ineffective
money management, so the expenses
can be handled and the total
productivity can be maintained with
the aid of the cost accounting system.
In order to control the
business-related risk, they
should take with account the
inventory management system
because they will do this to
insure that the product prices
are not raised and therefore the
inventory is not accrued.
M4. Analyse that how to respond financial problems, management accounting can lead
organisations to sustainable success
There are many management methods such as key performance indicator, benchmarking,
and much more are used by Tesco, Sainsbury's, and other large-scale organisations. For them,
such techniques are very useful in constructing the most beneficial techniques so that they can
survive on the sector and deal with their competitors in an effective manner. These strategies find
a path to overall success through which the two companies can achieve financial security by
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taking historical history as a basis. Tesco uses KPI to enhance its performance, while Sainsbury
uses benchmarking to make forecasts in its work and identify any differences. All of these
approaches are helpful in improving opportunities for development and ensuring competitiveness
in the markets.
D3. Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success
Businesses use several forecasting methods, such as flexible budgets, capital or operational
schedules and many more (Tan, 2019). Company uses this to resolve any enforceable potential
uncertainty particularly and the amount of money needed for company activities. Management is
supposed to take actions on resources used during business in order to achieve high business
performance in the sense of Tesco. Apart from this management has a role to play in addressing
financial challenges that arise in industry and in adversely hampering productivity. Therefore it
can be argued that these considerations are beneficial in addressing corporate financial
challenges. Effective use of planning tools helps the managers to resolve financial issues or
provide organizational success.
CONCLUSION
From the overall discussion it has been observed that planning tools helps in controlling
budget and useful in forecasting for the future development. Operational, capital or flexible
budgets are used as effective planning tool which further helps the managers to make strategic
decisions to achieve higher returns. In addition, financial issues affect the entire operational
performance, so manager’s needs to implement management accounting systems for the better
outcomes which helps in achieving business goals & objectives. With the help of planning tool,
managers are able to forecast future activities and build strategies accordingly to maximise
company’s operational productivity as well as performance.
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REFERENCES
Books & Journals
Banker, R. D. And et.al., 2018. Cost management research. Journal of Management Accounting
Research, 30(3), pp.187-209.
Bulgakova, S.V. And et.al., 2018. Management accounting in effective structures of an
organization. Research Journal of Pharmaceutical, Biological and Chemical
Sciences, 9(5), pp.1095-1105.
Căpușneanu, S. And et.al., 2020. Management Accounting in the Digital Economy: Evolution
and Perspectives. In Improving business performance through innovation in the digital
economy (pp. 156-176). IGI Global.
Choi, H. and Byun, J., 2018. The relationship between corporate social responsibility and
earnings management: accounting for endogeneity. Investment Management & Financial
Innovations, 15(4), p.69.
Johanson, D. and Madsen, D. Ø., 2018. A virus perspective on management accounting
innovations. Available at SSRN 3197129.
Laing, G. K. and Perrin, R. W., 2018. Management Accounting in the Australian Printing
Industry: A Survey. The Journal of New Business Ideas & Trends, 16(3), pp.13-19.
Quinn, M. and Hiebl, M. R., 2018. Management accounting routines: a framework on their
foundations. Qualitative Research in Accounting & Management.
Tan, H. C., 2019. Using a structured collaborative learning approach in a case-based
management accounting course. Journal of Accounting Education, 49, p.100638.
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