Management Accounting Report: Improving Tata Motors Performance

This report provides a comprehensive analysis of management accounting principles and their application within Tata Motors. It begins with an introduction to management accounting, emphasizing its role in internal decision-making, cost control, and operational efficiency. The report delves into essential requirements of management accounting systems, including cost accounting, price optimization, inventory management, and job costing, illustrating how these tools can be utilized to improve business performance. Furthermore, the report compares and contrasts financial and management accounting, highlighting their distinct purposes and user bases. It also explores various management accounting reporting methods, such as debtors aging reports, budgetary control reports, inventory reports, and job cost reports, explaining their significance in monitoring and controlling business operations. The report concludes by examining how a management accounting system can be used to address financial problems, providing a practical perspective on its utility in real-world business scenarios. The report uses Tata Motors as a case study, making it relevant to the automotive industry and showing how management accounting supports strategic decision-making and financial health.

Management accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Task 1...............................................................................................................................................1
P 1 Management accounting and essential requirements of management accounting in the
business...................................................................................................................................1
P2 Types of management accounting reporting methods.......................................................4
Task 2...............................................................................................................................................6
P3 Calculation of absorption and marginal costing ...............................................................6
Task 3...............................................................................................................................................7
P4 Different types of planning tools with advantages and disadvantages .............................7
P5 How management accounting system can be used by organisation to respond to financial
problems...............................................................................................................................11
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
To assist the business in a good manner the management accounting helps in giving the
internal cure to the entity. Therefore, tools and techniques which will be helpful in managing the
operational activities in the premise. It includes, costing, budgeting and reporting techniques
which gives internal analysis of the organisation that will be helpful in managing the internal
business. In the present report Tata Motors will be helpful in having satisfactory advices that will
be used in increasing the efficiency as well as productivity of the business which will result in
better profitability.
Task 1
P 1 Management accounting and essential requirements of management accounting in the
business
Management accounting plays crucial role in the company as it assist management in
taking effective and better decisions with much ease. This is a branch of accounting which takes
information from financial accounting and draws results whether company is efficient or not in
producing tasks. It means that organisation seeks financial data and then management takes
decision for strengthening internal operations of the company (Cooper, Ezzamel and Qu, 2017).
Managerial personnels analyses various reports and as such, decisions are made for improving
performance in the best possible way. Tata Motors Company which is the biggest automotive
industry in the world also uses management accounting information to make organisation
internally strong. It provides customers large portfolio of goods which provides greater level of
satisfaction to them in the best possible manner.
Management accounting provides timely internal reports which provides clarity to
business whether costs are controlled to achieve desired production or not. This implies that
management accounting is process of assessing costs and business operations and thus, reports
are prepared and imparted to managerial personnels to take enhanced decisions. It can be said
that Tata Motors uses management accounting to control its expenses and costs in the best
possible way so that expenditures may not exceed revenue in any manner. Thus, this type of
accounting aids in taking decisions with much ease (Jermias, 2017). Furthermore, management
accounting information is imparted only to management and not to users of financial information
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as it is based on internal operations of the company. In addressing this, essential requirements of
management accounting systems are as follows-
1. Cost accounting system
It is useful system of management accounting which deals with controlling costs in the
organisation in the best possible manner. This means that expenditures need to be lowered down
so that revenue may be increased up to high extent. Furthermore, there are various costs such as
fixed, variable, semi variable, direct and indirect which are incurred in order to generate desired
production with much ease (Ax and Greve, 2017). This implies that business costs are analysed
by the management and measures are taken to reduce the same in effective way. This accounting
system help company to initiate control on operational costs and as such, revenue may be
achieved in the best possible manner. Tata Motors is required to assess expenditures incurred on
production of automotive goods so that desired profits may be accomplished in effectual way.
Thus, it can be said that organisation controls costs and as such, revenue may be achieved quite
effectively.
2. Price optimisation
This is another useful management accounting system which help company to quote price
of particular product in accordance with customers' preferences. It is a mathematical technique
which is used to set price so that consumer may purchase goods in effective manner. This is
required by the company because if more prices are set, then customers will be driven away by
rivals and as such, it becomes important to set price in accordance to the preferences of
customers. Tata Motors is also uses price optimisation technique which help to assess whether
demand fluctuates with change in price of goods or not. This system provides clarity whether
customer will pay for the quoted price or not (Pratheepkanth, 2018). Thus, it helps organisation
to attain price level by which consumers will be attracted to purchase commodity. Hence, price
optimisation system aids management in taking effective decision by quoting optimum price
which will help to accomplish revenue and customer satisfaction.
3. Inventory management
Inventory is an integral part of the manufacturing organisation. For achieving desired
level of production, it is required that company has adequate level of stock in the warehouse.
Tata Motors also requires to have desired inventory level so that production may be
accomplished in the best possible manner. This is essentially needed because if inventory is not
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ion adequate quantum, production will be hampered. It will have serious repercussions on the
company as customer's orders would not be fulfilled. On the other hand, if excess inventory is
ordered from the suppliers, then it will inculcate extra cost of handling in the warehouse. Thus, it
is required to manage stock level in order to achieve production with much ease (Nuhu, Baird
and Bala Appuhamilage, 2017). Hence, inventory is ordered by management by anticipating
need and demand of production department so that unnecessary wastage could not be occurred
and as such, desired stock is provided to the production unit to accomplish customer orders by
achieving production.
4. Job costing
Job costing is effective management accounting system which help to accomplish
different units of production. This costing is quite useful for controlling costs incurred on each of
the manufacturing jobs. This is helpful for company so that expenses may be effectively
controlled so that production may be increased with much ease. It is quite useful for the company
and as such, manufacturing expenditures on various jobs are assessed and controlled quite
effectually (Krumwiede, Paik and Walden, 2018). There are job costing forms such as direct
labour, direct materials and overhead which incurs throughout the production process in the
company. Tata Motors requires keeping track of each of the job costs so that expenses may be
effectively controlled and demand of customers may be achieved with timely fulfilment of
orders. Thus, operations of the business can be strengthened in effective way.
Hence, these types of management accounting system are quite helpful to make effective
decision by the management of Tata Motors and as such, revenue may be garnered quite
effectually.
Financial Accounting Management Accounting
 The preparation of financial statements
will be used by company in terms of
gaining appropriate investment from
the market.
 The users of such accounts are mainly
the equity holders, creditors,
governmental authorities as well as
 The main purpose of preparing the
managements accounts is to have better
internal analysis of the business which
helps the managerial professionals in
decision making.
 There has been preparation of various
budgetary accounts, costs accounts and
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banking institutions.
 They seek for the information relevant
with the financial position which
ascertains the efficiency and liquidity
of firm in meeting its debts.
 The turnover for the year has been
reflected in the income statement where
the equity holder seeks for the amount
of dividend will be payable to them as
well as new investors will be attracted
towards it (Mättö and et.al., 2017).
 Financial accounting can assist the
business entity in for to recording and
summarising of their financial
statements in the company in more
effective manner.
 With the assistance of financial
information of the company, the
manager of the firm can control the all
monetary terms in the business
sufficiently.
 Financial accounting of Tata
organisation furnish financial
information of outside parties of
business in proper format.
 Financial statements is prepared in Tata
organisation at the end of the
accounting period which is usually one
year.
their analysis which will be helpful in
improving the organisational efficiency.
 It ascertains the requirement of funds as
well as costs incurred in each operating
departments.
 It will be beneficial as the departmental
reports will analyse the costs and
revenue generated by such units that
will be motivating and effective in
developing productive changes.
 Management accounting assist the Tata
automotive business manager to
manage all financial activities at the
workplace in proper manner.
 With the help of management
accounting, its business manager can
control and manage monetary and non-
monetary business in more sufficient
form within the industry effectively.
 This assist the business manager in
order to provision of sufficient
knowledge and information about to
decision making process in the
company to cut down production costs
in the business in more efficient form.
 In case of management accounting
reports is formulated by Tata
automobile business manager as per the
requirement of the company in the
industry effectively.
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P2 Types of management accounting reporting methods
To analyse the costs incurred in each business units there is need to have separate reporting
systems in the business. Therefore, it will bind the managerial heads in each unit of Tata Motors
to prepare the data set in to form of report and communicate the outcomes with the senior head.
Therefore, it will be helpful to the entity n terms of having better control and monitoring of
work. Thus, there are various reports which are needed to be evaluated such as:
Debtors aging report: this enables the managerial professionals in having appropriate
information regarding the accounts receivables of the firm. Moreover, it will be beneficial in
terms of analysing the paying terms and conditions is that how often the debtors make payments
to the firm. This will be helpful in analysing the amount which is about t be received by the firm.
Therefore, on the other side to mention such reporting in the financial statement which is tax
free. Similarly the business is not bound to make taxable payments in relation with the debtors or
the amount is waited to be received (Saliterer, Sicilia and Steccolini, 2018). It will be helpful to
Tata Motors in terms of having satisfactory records of all the debtors and the amount which is
about to be received.
Budgetary control report: these are the reports which were needed to be prepared by all the
professionals’ heads for their departments. It helps them in forecasting the costs or revenue for
operating the industrial activities. Thus, the budgets were made in terms of provide the
satisfactory amount of funds for each business unit as well as helping them in terms of better
operational practices (Wandee, Sirisuthi and Leamvijarn, 2017). Similarly, it will be beneficial to
Tata Motors in terms of making the adequate analysis over the costs incurred in piece of work as
well as the revenue gathered by them in such units. However, the variance of such budgets will
be used for the further planning and forecasting.
Inventory report: this is the best reporting technique which gives proper execution over
inflows and outflows of the inventory in the business. Moreover, use of such technique which
will be helpful to Tata Motors in analysing the material availability for business operations. It
executes as managing the inventories such as imports and exports of goods, scarcity, availability
as well as proper utilisation (Syahrir and et.al., 2017). Thus, this in turn reduces the wastes
incurred by entity.
Job cost reports: this is the most effective and adequate reporting technique which will be
helpful in managing the business operations as well as costs incurred in a job. Thus, it ascertains
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the costs required and included in a particular activities. Similarly, it will be helpful and fruitful
for Tata Motors in relation with having the adequate analysis over the business activities and
demonstrating the profitability as well as costs in each job.
Task 2
P3 Calculation of absorption and marginal costing
To have the appropriate analysis over the business performance there are various
operations which will be helpful to the entity in terms of managing the performance of
organisation (Cooper, Ezzamel and Qu, 2017). Below listed tables will represent the income
statement which were based of marginal and absorption costing techniques. Thus, it will be
fruitful for them in managing the business operations.
Absorption costing:
Income statement for absorption cost Amount
sales revenue 2500* 200 500000
Less: costs of sales
Direct material 3000*45 135000
Direct labour
Machining Dept. 3000/100*5hr* 4 600
Finishing department 3000/20*3hr*6 2700
Dispatch department 3000/20* 1hr*5 750
Packing boxes 2500*1 2500 141550
Fixed Over heads
Less: Machining dept. 3000/100*5hr*6 900
less: Finishing dept. 3000*4 12000
Less:Dispatch Dept 500*1 500 13400
Cost of production under absorption costing 154950
Less:Closing stock
Cl. stock of unpacked 400* 5155 149795
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Cost of packed units 2500* 20380
Cost of sales 129415
Gross profit 629415
Marginal costing:
Income statement for marginal costing Amount
sales revenue 2500* 200 500000
Cost of sales
Direct material 3000*50 150000
Direct labour
Machining dept. 3000/100*4hr* 5 600
Finishing department 3000/20*4*6 3600
Dispatch department 100/20* 1hr*5 25
Packing boxes 2500*1 2500 156725
Total Variable costs (3000 units)
Less: Closing stock
Cl. stock of unpacked 400 5155 151570
Cost of packed units 2500 20380
Cost of sales 171950
Contribution 671950
Less:
Fixed Over heads
Less: Machining dept. 3000/100*5hr*6 900
less: Finishing dept. 3000*5 15000
Less:Dispatch Dept 2500*1 2500 18400
Gross profit 653550
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By considering the outcomes from both the costing analysis it can be said that both the
techniques are differed from each other and have the adequate analysis through various sources.
Moreover, the marginal costing considers the variable costs incurred in thee business activities
while absorption costs consists of all the costs. Therefore, the outcomes derived from absorption
costing is quiet helpful and beneficial for the growth of entity.
Task 3
P4 Different types of planning tools with advantages and disadvantages
To develop the operational activities of Tata motors there is need to have appropriate
analysis through various sources which will be helpful in managing the business operations.
There will be use of various planning tools and budgetary control techniques which in turn
helpful in enhancing the business efficiency as well as bring the adequate control (Pratheepkanth,
2018). It can be analysed as:
Internal rate of return:
This is the rate which ascertains that the future cash flow will be equals to zero.
Therefore, it can be said that it is the rate which was levied over the invested money by the
organisation in specific project. This will help in analysing the profitability of the return from
their invested money in the projects (The Advantages & Disadvantages of the Internal Rate of
Return Method, 2017). This is made during the year over initial investments with inflows. This
will help managers in Tata automobile firm to know about increment in the total cash inflows
during the period. There are various advantages and disadvantages of this planning tool which
will be analysed as follows:
Advantages:
 It considered the time value of money which ascertains the business in making the
profitable gains in the coming time.
 It is comparatively easy to understand and have the satisfactory interpretation.
 It is very crucial for analysing the rate as it is considered the value of time and money
which ignored by ARR.
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 The methods is also very easy to use and measurable which will help to make adequate
increment in business operational activities and performances.
 It also ignores rate of hurdle that invite the rough estimation over any investment in any
project.
Disadvantages:
 There are various limitation in terms of including the formulas for analysing the data set
which is quiet complex and unhelpful.
 The derived outcomes does not have accuracy and reliability.
 The main disadvantage is that it ignores the scale value while the rate over investment
capital in projects is analysed.
 There are no proper ad appropriate assumptions can be made because of implicated
impractical reinvestment rate effectively.
 There are two projects considered by firm in terms of various differences in completion
of projects.
 The method mixes negative cash flows and positive as well for the year which is not an
adequate measurement for the rate of changes between them effectively.
Net present value:
This is also effective management accounting tools for appropriate budget planning in
Tata auto-mobile business in sufficient format. Net present value shows some difference between
the present value of cash flows and the preset value of cash outflows in the business in relevant
manner. This is most crucial factor for the business manager in order to identify some areas by
which effective relevant data of company's cash flow and outflow can be examined in more
relevant manner (Jermias, 2017). This is mostly utilised by its manager in respect to formation of
appropriate capital budgeting in the business environment in relevant form. Its positive value
indicate that, the projection of the company is earning generated by a project or investment
exceeds the anticipated costs effectively. Basically, the positive values of NPV indicate the
profitability of the business within the industry in more relevant manner.
Advantage of NPV:
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 This is the most appropriate ways of assessment to identification of the profitability of
Tata company on its essential investment in the company's portion effectively.
 The another main advantage in NPV is that. It is the process which could be used in
taking into accounts some general ideas that a future dollar. This is a proper assessment of costing in the business in order to taking into accounts to
the cost of capital in the business to identify the project succession effectively.
Disadvantages of NPV:
 The major disadvantage of NPV process is that, it needs some forecasting work about to
the firm's cost of capital.
Average rate of retrun: It is a proportionate return on capital which is invested in projects
without any consideration of time and value of money effectively. Avarage rate of return is based
on cash inflow, average or accounting return over capital analysing. Here are some advantages
and disadvantages described below:
Advantages:
It is a easy way to measure profits over total revenue in terms of considering the profitability or
cash inflow of the period effectively.
Average rate of return is important that net earnings of the year is considered by this concept
which isa vital factor in investment appraisal proposals.
This will also help to compare two or more than two projects and analyse effective returns
gained from them.
The technique will help to measure accounting returns as per the records and transactions made
during the year effectively.
Disadvatages:
 It is very difficult for the managers in Tata company to analyse the return on investment
capital and profitability with ROI and ARR concepts.
 The outcomes are also hnot so effective and appropriate that analyisng the fair rate of
returns is also difficult.
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