Management Accounting Report: Tesco PLC Budgeting Analysis
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This report offers an in-depth analysis of the management accounting practices employed by Tesco PLC, a leading multinational retail company. It begins by defining management accounting and its significance in organizational decision-making, emphasizing its role in providing internal financial and managerial information. The report then delves into the identification and analysis of inherent weaknesses within the annual budgeting model, a crucial component of Tesco's financial planning. It explores various budgeting models, including static, zero-based, incremental, flexible, centralized, activity-based, and performance-based approaches, highlighting their respective advantages and limitations. Furthermore, the report examines the traditional budgeting process and its potential as a barrier to strategic changes, particularly when compared to models such as activity-based costing and the balanced scorecard. The analysis underscores the importance of adapting to new budgeting techniques to overcome the limitations of traditional methods. The report concludes by summarizing the key findings and emphasizing the need for continuous improvement and adaptation in management accounting practices to enhance organizational performance and decision-making.

MANAGEMENT
ACCOUNTING
ACCOUNTING
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Table of Contents
INTRODUCTION...........................................................................................................................1
1 Identifying and analysing inherent weaknesses.......................................................................1
2 traditional budgeting process as a barrier.................................................................................3
CONCLUSIONS..............................................................................................................................4
.........................................................................................................................................................4
REFERENCES................................................................................................................................5
INTRODUCTION...........................................................................................................................1
1 Identifying and analysing inherent weaknesses.......................................................................1
2 traditional budgeting process as a barrier.................................................................................3
CONCLUSIONS..............................................................................................................................4
.........................................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Management accounting is a wide term used for preparing different reports and
statements considering financial as well as managerial information of an organisation. These
informations are required by an organisation for making day to day decisions. It provides
information to internal management but not to external department. It includes information
regarding trend charts, variance analysis as well as information of inventory. This report of
management accounting in consisting of management accounting of Tesco PLC. It is a British
multinational grocery as well as general merchandise retail company whose headquarters are
situated in Welwyn Garden City in England (Zimmerman and Yahya-Zadeh, 2011). It is 3rd
highest profit making company. This report is being prepared to analysing inherent weaknesses
that is part of Annual budget model. Activity Based models and Balanced Scorecard are also
been discussed in this research report.
1 Identifying and analysing inherent weaknesses
Annual budget is being prepared by any organisation in once a year in a time gap of 12
months. This budget repost is consisting of incomes as well as expenditures of that particular
period. This accounting information is used in taking decisions for the organisation and very
important for internal management of company to managing their functions and duties. This
information can be used by shareholders and other interest holders of company. Budgeting is
used by a business entity to controlling and ascertaining costs of Tesco limited (Granlund,
2011). These are used in making decisions and these are used by company to maximising rate of
return. Following are different models of annual budget which have their limitations as well:
Static: this model is being prepared for a whole year and estimation is also made. It is
consisting of details of all expenditures that are going to be incurred in that specific time period.
By using this model of annual budget a maximum line is decided by management under which
all expenses and operations are to be managed and it is necessary for company to stick on that
decided figure. After making this, effective control and measures should be initiated by company
so that corrective measures can be taken to solve the problems. Although there are so many
positive aspects of this model but there are many limitations and drawbacks also of this annual
budget report model. It will make the whole organisation so much dependent on existing model
1
Management accounting is a wide term used for preparing different reports and
statements considering financial as well as managerial information of an organisation. These
informations are required by an organisation for making day to day decisions. It provides
information to internal management but not to external department. It includes information
regarding trend charts, variance analysis as well as information of inventory. This report of
management accounting in consisting of management accounting of Tesco PLC. It is a British
multinational grocery as well as general merchandise retail company whose headquarters are
situated in Welwyn Garden City in England (Zimmerman and Yahya-Zadeh, 2011). It is 3rd
highest profit making company. This report is being prepared to analysing inherent weaknesses
that is part of Annual budget model. Activity Based models and Balanced Scorecard are also
been discussed in this research report.
1 Identifying and analysing inherent weaknesses
Annual budget is being prepared by any organisation in once a year in a time gap of 12
months. This budget repost is consisting of incomes as well as expenditures of that particular
period. This accounting information is used in taking decisions for the organisation and very
important for internal management of company to managing their functions and duties. This
information can be used by shareholders and other interest holders of company. Budgeting is
used by a business entity to controlling and ascertaining costs of Tesco limited (Granlund,
2011). These are used in making decisions and these are used by company to maximising rate of
return. Following are different models of annual budget which have their limitations as well:
Static: this model is being prepared for a whole year and estimation is also made. It is
consisting of details of all expenditures that are going to be incurred in that specific time period.
By using this model of annual budget a maximum line is decided by management under which
all expenses and operations are to be managed and it is necessary for company to stick on that
decided figure. After making this, effective control and measures should be initiated by company
so that corrective measures can be taken to solve the problems. Although there are so many
positive aspects of this model but there are many limitations and drawbacks also of this annual
budget report model. It will make the whole organisation so much dependent on existing model
1
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that there will be no flexibility remained. It will be difficult for a company to accept and adapt
the new techniques in their business and that will surely effect profitability of an organisation.
Zero based budgeting: this model of preparing annual budget by those business entities
which are of non commercial nature (Fullerton, Kennedy and Widener, 2013). These are used to
justify all the expenses for a new period. This type of budgeting starts from zero budget and then
every operation of company is being done after analysing needs and cost of such work. There is
limitations also of such budget that it is very hard to prepare and it takes a lot of time. There is
need of expert advice to preparing this budget so it can increase cost of such company.
Incremental budgeting: these budgets are prepared when time is taken into
consideration and is a big hurdle or an obstacle. The existing budget limits are being increased to
extent of some percentages if there is such requirement. It is also followed through different
concepts such as zero based budgeting under which all expenditures are to be done within given
particular time. In this model of budgeting, amount that is kept for the current year expenditures
can also further transferred for upcoming consecutive years (Otley and Emmanuel, 2013). This is
most suitable for small scale organisations but can not be used by medium as well as large
enterprises.
Flexible budgeting: these are those type of budgets that can be modified according to
changes in external environment. This is considered as best budgeting model because existing
budget data can be changed anytime according to market situations and change in plans and
strategies. This is suitable for such business entities which are extremely effected with external
factors because these factors changes from time to time. There are some negative effects also of
this budgeting model that it can not be used by those organisations who have complex functions
and those data can not be altered easily (Hiebl, 2014).
Centralised budget: this is a very important budget that is prepared by higher
management as it is consisting of crucial decisions. It has great effect on performance of
organisation. Control of a business is in hands of upper level management so it becomes smooth
to make policies and guidelines and then budget is being prepared. Various department's
demands and needs are once analysed and expenditures and revenues are being calculated then
for a particular time period budgets will be prepared. There are many drawbacks also of this
budget system such as it is difficult to assess exact amount of expenditures and revenues of
different departments.
2
the new techniques in their business and that will surely effect profitability of an organisation.
Zero based budgeting: this model of preparing annual budget by those business entities
which are of non commercial nature (Fullerton, Kennedy and Widener, 2013). These are used to
justify all the expenses for a new period. This type of budgeting starts from zero budget and then
every operation of company is being done after analysing needs and cost of such work. There is
limitations also of such budget that it is very hard to prepare and it takes a lot of time. There is
need of expert advice to preparing this budget so it can increase cost of such company.
Incremental budgeting: these budgets are prepared when time is taken into
consideration and is a big hurdle or an obstacle. The existing budget limits are being increased to
extent of some percentages if there is such requirement. It is also followed through different
concepts such as zero based budgeting under which all expenditures are to be done within given
particular time. In this model of budgeting, amount that is kept for the current year expenditures
can also further transferred for upcoming consecutive years (Otley and Emmanuel, 2013). This is
most suitable for small scale organisations but can not be used by medium as well as large
enterprises.
Flexible budgeting: these are those type of budgets that can be modified according to
changes in external environment. This is considered as best budgeting model because existing
budget data can be changed anytime according to market situations and change in plans and
strategies. This is suitable for such business entities which are extremely effected with external
factors because these factors changes from time to time. There are some negative effects also of
this budgeting model that it can not be used by those organisations who have complex functions
and those data can not be altered easily (Hiebl, 2014).
Centralised budget: this is a very important budget that is prepared by higher
management as it is consisting of crucial decisions. It has great effect on performance of
organisation. Control of a business is in hands of upper level management so it becomes smooth
to make policies and guidelines and then budget is being prepared. Various department's
demands and needs are once analysed and expenditures and revenues are being calculated then
for a particular time period budgets will be prepared. There are many drawbacks also of this
budget system such as it is difficult to assess exact amount of expenditures and revenues of
different departments.
2
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Activity based budgeting: this method is being adapted by service oriented businesses
and industries. Main attention is given on those expenditures which are made for motive of
generating good returns. Different departments of any organisation are given roles and
responsibilities of making budget for different activities (Parker, 2012). This is not suitable for
those company who are commercial enterprises. Because making estimation of different
expenses is very difficult.
Performance based budgeting: this is as similar to activity based budgeting because in
that type of budgeting model limits are set according to performance and it is being determined
that what will be the maximum limit of operations. It is a very good and suitable method
because it facilitates transparency at working place.
2 traditional budgeting process as a barrier
Traditional budgeting is being done in such manner that all budgets are prepared by
specifying amounts that are required to be spent on different activities. Whole attention and
focus in this budgeting was completely on cost control (Davies and Crawford, 2011). For
implementation of strategic changes traditional budgeting may be seen as a barrier on the
operations of other models. They are different ways in which models will be effected:
Activity based model: in traditional methods of budgeting, their main focus was on cost
associated to different departments of any organisation but in this model work volume is given
main preference while preparing budgets. That does not mean costs are not taken into
consideration. Costs are further apportioned and allocated according to the activities. Main
problem or issue that can be faced by this model is vy using traditional method, the unused
efficiency can not be identified.
All those resources which are being utilised by organisation are not included in this
budget and their analytical values only be considered. That means it specify a limit of
expenditures that can be incurred. in traditional budgeting method the nature of costs was
considered such as cost is fixed or variable but in AB model method cost is allocated according
to the activities to be performed by organisation. Traditional method does not accept changes but
activity based method accepts all the changes and then make modifications in operations as well.
That is why the traditional budgeting is outdated now.
Balance scorecard approach: in this approach of preparing budgets different important
aspects are covered. In this approach the main preference is given to thee financial, customer
3
and industries. Main attention is given on those expenditures which are made for motive of
generating good returns. Different departments of any organisation are given roles and
responsibilities of making budget for different activities (Parker, 2012). This is not suitable for
those company who are commercial enterprises. Because making estimation of different
expenses is very difficult.
Performance based budgeting: this is as similar to activity based budgeting because in
that type of budgeting model limits are set according to performance and it is being determined
that what will be the maximum limit of operations. It is a very good and suitable method
because it facilitates transparency at working place.
2 traditional budgeting process as a barrier
Traditional budgeting is being done in such manner that all budgets are prepared by
specifying amounts that are required to be spent on different activities. Whole attention and
focus in this budgeting was completely on cost control (Davies and Crawford, 2011). For
implementation of strategic changes traditional budgeting may be seen as a barrier on the
operations of other models. They are different ways in which models will be effected:
Activity based model: in traditional methods of budgeting, their main focus was on cost
associated to different departments of any organisation but in this model work volume is given
main preference while preparing budgets. That does not mean costs are not taken into
consideration. Costs are further apportioned and allocated according to the activities. Main
problem or issue that can be faced by this model is vy using traditional method, the unused
efficiency can not be identified.
All those resources which are being utilised by organisation are not included in this
budget and their analytical values only be considered. That means it specify a limit of
expenditures that can be incurred. in traditional budgeting method the nature of costs was
considered such as cost is fixed or variable but in AB model method cost is allocated according
to the activities to be performed by organisation. Traditional method does not accept changes but
activity based method accepts all the changes and then make modifications in operations as well.
That is why the traditional budgeting is outdated now.
Balance scorecard approach: in this approach of preparing budgets different important
aspects are covered. In this approach the main preference is given to thee financial, customer
3

need and demands, growth as well as internal processes (Ahmad-Zaluki, Campbell and
Goodacre, 2011). These all can not be achieved by using traditional methods of budgeting.
Because in traditional method whole preference is given to costs. But satisfaction of their
customers and finance etc are not covered by this traditional methods. In changing market
situations and environment it is necessary that demands of consumers shall be taken into
consideration so that goals of organisation can also be achieved.
There are many processes that are to be taken and it is necessary that these all should be
recognised. So that these can be managed in a appropriate manner. It is important for smooth
functioning of any organisation. But it is not possible by using traditional budgeting methods
because they are only cost oriented and do not focus on any other factors. In case of balance
score card method all the aspects and elements related to finance and market demand are taken
into consideration. Traditional method does not give any weight to other things but score card
method use all other things appropriately. So it is not possible to implement that traditional
method in organisation because it will create many problems and issues, which can be solved by
using other models.
CONCLUSIONS
in above mentioned report different models of budgeting are discussed and their
advantages and disadvantages are also taken into consideration. It has been explained in above
report that it is necessary to use new models and techniques of budgeting instead of using
traditional methods as they focus only on cost and avoid all other important factors which effect
an organisation. This report is also containing inherent weaknesses of the company which are
also needed to be considered in an annual budget report.
4
Goodacre, 2011). These all can not be achieved by using traditional methods of budgeting.
Because in traditional method whole preference is given to costs. But satisfaction of their
customers and finance etc are not covered by this traditional methods. In changing market
situations and environment it is necessary that demands of consumers shall be taken into
consideration so that goals of organisation can also be achieved.
There are many processes that are to be taken and it is necessary that these all should be
recognised. So that these can be managed in a appropriate manner. It is important for smooth
functioning of any organisation. But it is not possible by using traditional budgeting methods
because they are only cost oriented and do not focus on any other factors. In case of balance
score card method all the aspects and elements related to finance and market demand are taken
into consideration. Traditional method does not give any weight to other things but score card
method use all other things appropriately. So it is not possible to implement that traditional
method in organisation because it will create many problems and issues, which can be solved by
using other models.
CONCLUSIONS
in above mentioned report different models of budgeting are discussed and their
advantages and disadvantages are also taken into consideration. It has been explained in above
report that it is necessary to use new models and techniques of budgeting instead of using
traditional methods as they focus only on cost and avoid all other important factors which effect
an organisation. This report is also containing inherent weaknesses of the company which are
also needed to be considered in an annual budget report.
4
⊘ This is a preview!⊘
Do you want full access?
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Trusted by 1+ million students worldwide

REFERENCES
Books and journals:
Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control.
Issues in Accounting Education. 26(1). pp.258-259.
Granlund, M., 2011. Extending AIS research to management accounting and control issues: A
research note. International Journal of Accounting Information Systems. 12(1). pp.3-19.
Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2013. Management accounting and control
practices in a lean manufacturing environment. Accounting, Organizations and Society.
38(1). pp.50-71.
Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management control.
Springer.
Hiebl, M.R., 2014. Upper echelons theory in management accounting and control research.
Journal of Management Control. 24(3). pp.223-240.
Parker, L.D., 2012. Qualitative management accounting research: Assessing deliverables and
relevance. Critical perspectives on accounting. 23(1). pp.54-70.
Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.
Ahmad-Zaluki, N.A., Campbell, K. and Goodacre, A., 2011. Earnings management in Malaysian
IPOs: The East Asian crisis, ownership control, and post-IPO performance. The
International Journal of Accounting. 46(2). pp.111-137.
5
Books and journals:
Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control.
Issues in Accounting Education. 26(1). pp.258-259.
Granlund, M., 2011. Extending AIS research to management accounting and control issues: A
research note. International Journal of Accounting Information Systems. 12(1). pp.3-19.
Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2013. Management accounting and control
practices in a lean manufacturing environment. Accounting, Organizations and Society.
38(1). pp.50-71.
Otley, D. and Emmanuel, K.M.C., 2013. Readings in accounting for management control.
Springer.
Hiebl, M.R., 2014. Upper echelons theory in management accounting and control research.
Journal of Management Control. 24(3). pp.223-240.
Parker, L.D., 2012. Qualitative management accounting research: Assessing deliverables and
relevance. Critical perspectives on accounting. 23(1). pp.54-70.
Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.
Ahmad-Zaluki, N.A., Campbell, K. and Goodacre, A., 2011. Earnings management in Malaysian
IPOs: The East Asian crisis, ownership control, and post-IPO performance. The
International Journal of Accounting. 46(2). pp.111-137.
5
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