Tata Motors: Integrating Management Accounting within Processes

This report provides a comprehensive analysis of management accounting practices at Tata Motors. It begins by explaining management accounting and detailing essential requirements for different management accounting systems suitable for Tata Motors, including inventory management, cost accounting, and price optimization systems. The report further explains various management accounting reporting methods, such as budget reports, variance analysis reports, and cost reports, evaluating the benefits of these systems within an organizational context and critically assessing their integration within organizational processes. The report includes the production of two income statements using absorption costing and marginal costing techniques, along with a reconciliation of the two methods, and a suggestion on whether the company should proceed with the product. Finally, the report discusses the advantages and disadvantages of different planning tools for budgetary control in Tata Motors, compares how organizations adapt management accounting systems to respond to financial problems, and evaluates how these planning tools address financial problems to lead organizations to sustainable success.

Management accounting
1

Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................4
P1: Explain management accounting and give the essential requirements of different types of
management accounting systems that could be used by Tata Motors.........................................4
P2: Explain different methods used for management accounting reporting relevant to Tata
Motors..........................................................................................................................................6
M1 Evaluate the benefits of management accounting systems and their application within an
organisational context..................................................................................................................7
D1 critically evaluates how management accounting systems and management accounting
reporting is integrated within organisational processes...............................................................8
Task 2...............................................................................................................................................9
P3 You need to clearly produce two income statements showing absorption costing techniques
and marginal costing techniques..................................................................................................9
M2 accurately apply a range of management accounting techniques and produce appropriate
financial reporting documents....................................................................................................14
D2 Produce financial reports that accurately apply and interpret data for a range of business
activities.....................................................................................................................................15
Task 3.............................................................................................................................................16
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control in Tata Motors...............................................................................................16
M3 Analyse the use of different planning tools and their application for preparing and
forecasting budgets....................................................................................................................18
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems......................................................................................................................19
M4 Analyse how, in responding to financial problems, management accounting can lead
organisations to sustainable success..........................................................................................20
D3 Evaluate how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success...............................................................21
Conclusion.....................................................................................................................................22
References......................................................................................................................................23
2

Introduction
Management accounting is the technique in which various processes and functions are
undertaken to ensure the proper accounting in the business. For this there are various tools and
techniques that are required to be taken into account and all of them will be discussed in the
report presented below. In this, the case of Tata Motors will be used and on the basis of that, an
understanding of the important aspect of the business will be made. The income statements will
be prepared so that that earnings of the company can be ascertained and for that two approaches
will be used. The various planning tools will be taken into consideration which is used in the
budgetary control. The last part of the report will be based on the comparison of the company
with other so that financial problems are resolved in an effective manner.
3

Task 1
P1: Explain management accounting and give the essential requirements of different types
of management accounting systems that could be used by Tata Motors.
Management accounting is the process in which all the management reports are prepared and by
the help of them, it will be possible for the management to have the accurate data which they will
be suing in the process of decision making (Holt, 2014). The information will be available at the
time and there will be an improvement which will be made with the help of it.
According to another definition, it is the method in which the cost of the business will be
analyzed so that it can be reduced and for this reports are prepared which will help in the
attainment of the business objectives. There are various functions of management accounting and
the most important among them are planning, controlling, organizing and decision making. By
the help of this managers performance will be made better (Ada & Ghaffarzadeh, 2015). The
financial accounting can also be undertaken and the main difference among both is as follows:
Management accounting Financial accounting
All the information will be used in this process
which means the financial as well as other.
Under this, the information which is related to
finance will only be undertaken.
The company will be the only user of this as
this is considered for internal management
only.
The external users will be requiring this so that
they can make the required decisions.
Under this, the reporting will be made as per
the discretion of the company.
This will be performed in accordance with the
set laws and standards.
4

The time limit and format for this is not
particular.
This will be prepared for the specified period
which is generally one financial year.
The Tata motors will be requiring the data and for the collection of the same it will be using the
various systems which are as follows:
Inventory management system: This system will be used by Tata motors as in this it will be
collecting the information regarding the demand of its products and then in accordance with
them the stock will be maintained in the company so that no loss is made due to unsold stock
(Guga & Musa, 2015). The approaches can be used in this such as economic order quantity and
for the valuation purpose FIFI, LIFO, and weighted average can be used.
Cost accounting system: The Tata motors will be undertaking this as all the processes will be
evaluated and on the basis of them the cost that is involved in them will be determined. For this,
there are several costing techniques that are used by the company and they include normal
costing, standard costing, and actual costing. The most optimum cost which will have to be
incurred is identified under this so that company can establish control on that.
Price optimization system: The Cars which are manufactured by the company will have to be
provided to the customers at the fixed price and that will have to be decided by the company by
taking due care. It will be considering all the factors in this process whether they are internal or
external (De Toni, et. al., 2017). The methods which are used in this are classified into two
categories which are market-related and cost-based approaches.
5

P2: Explain different methods used for management accounting reporting relevant to Tata
Motors.
Tata Motors will be making various decisions and for that, the information that is required is
taken from the reports that are prepared. The major reports which are used in the company are as
follows:
Budgets report: these are the reports in which all the information in relation to the cost and the
expenses which are to be made by the company in the coming period will be recorded. By the
help of them, it will be possible for the company to make the appropriate use of the resources
which are available with the company so that they can provide the company with the maximum
amount of benefits (De Jong, et. al., 2012). The targets which are specified in them will have to
be followed by all.
Variance analysis report: In this report, all the deviations which are made in the company of
the targets which are set in the budget will be identified and will be recorded. For this, the
company will be comparing the actual and the budgeted amount with each other. The findings
will then be used by the company in the making of the budget in the future. As all the loopholes
will be taken into consideration.
Cost report: The costs which are to be made by Tata motors will be recorded in this and by the
help of that proper planning will be made by the company so that they can follow the same and
attain the benefits with the help of them such as problem of shortage will be avoided and also the
total cost of the company will be reduced by which the overall increase in profitability will be
made in the business.
6

M1 Evaluate the benefits of management accounting systems and their application within
an organizational context.
The systems which are used will be providing Tata motors with some of the benefits which are
as follows:
 The performance of the company will be improved and this will be because of the
planning which will be made by the company with the help of the systems (Goddard and
Simm, 2017).
 The information which is collected is then used by the managers in the making of such
decisions by which targets of the company will be achieved.
 The company will be experiencing the reduction in the cost of the budget will be there
and working will be done according to that.
7

D1 critically evaluates how management accounting systems and management accounting
reporting is integrated within organizational processes.
The Tata motors are using both the systems and the reports in its business as by the help of them
it will be able to achieve the objectives which are set by them. They both are integrated as the
company will be using the information collected in the system for the formation of the reports as
this will not be possible without the help of systems (Lopez-Valeiras, et. al., 2015). This is
related to the organizations as in this process all the departments and sections of the company are
involved which makes all of them related to each other.
8

Task 2
P3 You need to clearly produce two income statements showing absorption costing
techniques and marginal costing techniques.
(a) Calculate the number of units completed and packed in the period.
The number of units which were completed was 3000 units and out of 2500 were sold. But the
closing stock of the unpacked units is 400 which means that 2600 units were packed in the
period.
(b) Produce a budgeted Manufacturing and Trading Account for the period using:
(i) Absorption costing:
Income statement by using absorption costing
Particulars calculations Amoun
t
Sales 2500*200 500000
Expenses:
Direct material 3000*50 150000
Direct labor 3000/100*5*4 600
Finishing department 3000/20*6*3 2700
9

Dispatch labor
department
2600/20*5 650
Packing box 2600*1 2600
Machining
Department
3000/100*6*4 720
Finishing department 3000/20*4*3 1800
Dispatch Department 2600*1 2600
Total cost 161670
Closing stock (400
units)
(150000+600+2700+720+1800)/
3000*400
20776
Closing stock (100
units)
(161670-20776)/2600*100 5419
Cost of sales 135475
Net profit as per absorption costing 364525
10

(ii) Marginal costing:
Income statement by using marginal costing
Particulars calculations Amoun
t
Sales 2500*200 500000
cost of goods sold:
Opening stock 0
Direct material 3000*50 150000
Direct labor 3000/100*5*4 600
Finishing department 3000/20*6*3 2700
Dispatch labor
department
2600/20*5 650
Packing box 2600*1 2600
11

Total variable cost 156550
Closing stock (400
units)
(150000+600+2700)/
3000*400
20440
Closing stock (100
units)
(156550-20440)/2600*100 5235
cost of goods sold 130875
contribution 369125
Fixed expenses:
Machining
Department
3000/100*6*4 720
Finishing department 3000/20*4*3 1800
Dispatch Department 2600*1 2600
Total fixed cost 5120
Net profit as per marginal costing 364005
12