BTEC Unit 5 Management Accounting Report: Tesco Plc Financial Analysis

This report provides a comprehensive analysis of management accounting principles and their application within Tesco Plc. It begins by introducing management accounting and its significance, then delves into various management accounting systems, including cost accounting, price optimization, job order costing, and inventory management. The report further explores accounting principles, the role of management accounting, and different reporting methods such as performance reports and cost management reports. The core of the report involves calculating costs using marginal and absorption costing techniques, followed by the application of various accounting techniques to produce financial reports. The report emphasizes the interrelation between accounting systems and reporting methods and concludes with a discussion on the benefits of these systems and the importance of financial statements in decision-making. The report includes calculations, financial reporting documents, and a critical evaluation of how accounting systems and reporting are linked.

Management Accounting A1
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INTRODUCTION
Management accounting is the process of managing internal operational activities of the
business. It support the managers through providing financial or non financial information for the
decision making purpose (Azudin and Mansor, 2018). Management accountant needs to address
all the activities which happening around the business or which can affect the productivity as
well as profitability of the company. This report based on Tesco Plc which is UK based
supermarket chain and it was founded in 1919. This assessment covers the several topics such as
understanding of management accounting systems and applies the range of accounting
techniques to calculate the overall profit.
MAIN BODY
Task 1
P1. Explain the different management accounting systems
In all the business enterprises the managers are using various types of systems for recording
and analysing actual performance of business. All of them are known as management accounting
systems. It is very important for all the entities to make sure that they are using all of them
properly as it can help to keep detailed information of progress of entity. In Tesco Plc different
types of management accounting systems are used which are as follows:
Cost accounting system: It is mainly focused with recording all the costs that are resulting
in expenses for the entity. With the help of it, the managers of Tesco Plc analyse the actual costs
of carrying out the operational activities (Dierynck and Labro, 2018). It guides them to figure out
all the causes of costs and formulate effective strategies so that all of them could be controlled
for the purpose of enhancing profits. The essential requirement of it for the organisation is that it
helps to determine actual costs of operations which are beneficial for formulation of future
strategies.
Price optimisation system: Managers in most of the organisations use it to determine the
best rates for the items that are offered to the customers so that they can buy it and their
expectation level could be met. Tesco Plc is using it to make sure that it sets such prices for all
the products and services that are sold by it to the customers which can meet their expectation
and help to meet the organisational objective such as good profits, satisfied clients etc. Essential
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requirement of this system for the enterprise is that it helps to formulate best possible price for
the offerings of company.
Job order costing system: This system of management accounting is focused with
recording of costs of all the jobs that are performed by the organisation so that the highly
profitable job could be identified. In Tesco Plc the members of management team are using it so
that they can analyse the best job which can help to enhance profits for the entity. Apart from
this, it also helps to formulate strategies for future for controlling extra costs. Essential
requirement of it for the entity is that it facilitates the analysis of cost of all the jobs that are
performed according to specifications of clients.
Inventory management system: It is mainly used in such entities that are involved in
manufacturing activities so that proper and detailed information of goods could be recorded. In
Tesco Plc it is used by the managers to make sure that they are having proper details of the stock
which is used to meet expectation of clients (Doktoralina and Apollo, 2019). There are three
different types of it which are LIFO, FIFO and AVCO. In LIFO recently purchased items are
used for operations, in FIFO previously bought goods are used for operational activities and in
AVCO goods are used on average basis for operational activities. In Tesco Plc FIFO is used by
the managers as it is essentially required for utilising all the goods in systematic manner.
Principles of management accounting:
There are numerous accounting principles which an organization has to follow it for the
better performance and results. Some of them are as follow:
 Management by exception: It is followed when accountant going to present information
to the management (Principles of Management Accounting, 2020). It ensures
that standard costing techniques and budgetary control system are preceded in the
management accounting system (MAS).
 Control at source accounting: Costs are essential concepts at the places at that they are
generated-at root accounting controls. Independent worker's efficiency, material issues,
and use of facilities such as equipment, fuel, repairs, cars, etc. are recorded in the form of
quantitative as well as qualitative information. Control over employees, materials and
equipment providing services can be exercised in this way.
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 Integration: It indicates that almost all of the company's appropriate data is integrated so
that they're used successfully at the maximum, while at the same period ensuring the
financial service at lowest possible cost.
Role of management accounting and MAS:
Role of management accountant and MAS is to design the framework for cost and
accounts and further produce financial reports for the managers to make strategic decisions in
context of organizations (Fleischman and McLean, 2020). In a Tesco Plc Company, role of
management accountant is to done short term or long term planning, produce management
information system, maintain capital structure, control over the entire business process and at the
end made decisions for the success of organizations. Role of MAS is to provide information
which helps the managers or management to take effective decisions in order to maximise
company’s productivity as well as performance to achieve their business goals & objectives.
P2. Explain the different methods which used for management accounting reporting
There are several methods of management accounting reporting which are used by the
accountants of Tesco Plc Company. Some of them are as follow:
Performance report: This report is followed by the organizations in order to evaluate the
overall performance of the company as well as every employee’s performances. This report helps
the managers to make key strategic decisions for the current or future operations of the company.
People also awarded on the basis of their performance which recorded in this report. Managers of
Tesco Plc adopt this report to evaluate individual as well as entire business performance in the
market.
Cost management report: This report provides a brief overview of all the information. It
offers executives the ability to recognize the expense of items vs. the sale prices. Profit margins
are calculated and tracked through all these findings as they shows clear picture of all the
expenses that go into manufacturing or distribution of the posts. They provide an appropriate
resolution of all expenditures, which would be necessary for successful utilization of resources
among divisions (Horton and de Araujo Wanderley, 2018).. Managers of Tesco Plc used this
report to identify each activity cost and further develop strategies accordingly.
Accounts receivable aging report: In this reporting method, accountant listed the
creditors or the receivable balance which they have to recover. Basically this reporting method
followed by the large organizations such as Tesco Plc, in order to identify total number of
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defaulters who still not paid their balances. It will provide overall overview of creditors and
pending amount which required recovering. This report helps the managers to make strong credit
policies which helps in minimising defaulters or make management aware about its accounts
receivable balance.
Above mentioned management accounting reporting methods are followed by the Tesco
Plc Company in order to evaluate their operational performance and further build key strategies
for minimising overall cost improve employee’s performance and identify their creditors for the
recovery of their amount.
M1. Benefits of management accounting systems
Cost accounting system:
 This method is helpful when estimating the total cost of the commodity, so that the
optimal profitability can be reached.
 That's also beneficial for the examination of mistakes in estimating the firm's corporate
operational costs.
Price optimisation system:
 The product price can be calculated accordingly on the basis of ratings and suggestions
and it make sure to meet customer’s objectives regarding price of product ( Schaltegger,
2018).
 It is a validated method for assessing consumer purchasing behaviour and on the basis of
it, managers make pricing strategy to maximise their profit margin.
Job order costing system:
 This helps employers to measure the income gained from particular workers, allowing
them to properly assess if similar job roles in the future are attractive.
 In this method, each job's productivity can be calculated independently which assists in
financial reporting.
Inventory management system:
 It is particularly useful for optimizing the supply and demand equation so as to satisfy
consumer demands in a more competitive manner.
 This minimizes the time needed to manage the product, reducing operating costs and
increasing productivity.
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D1. Critically evaluate that how accounting systems and reporting linked with each other
All MASs and reporting methods are strongly integrated, from which they can rely on their
contribution to corporate performance. It can be best illustrated in the explanation below, cost
accounting and performance analysis are interrelated which aids with the overall estimation of
expenditures generated in sales and other operations in order to gain support in pricing
techniques. It is useful in the planning of the budget proposal because it provides all the
important material on corporate finances. Another example of integration is that such reports are
effective in controlling an adequate levels of stock needed to satisfy customer needs inside the
inventory management system. This allows management accountants to control inventory
storage and associated paperwork from which enthusiasm can be demonstrated in workers in
order to fulfil their role and obligations.
Task 2
P3. Calculate cost by using appropriate accounting techniques
Marginal Costing: It is the costing method in which the expense units are paying
contingent expenses, and the time fixed costs are paid out in full against net expenditure.
Remember that variable expenses are those that shift with changes in production-these are
regarded with commodity costs within marginal costing method.
Absorption Costing: It is a mechanism by which the costs involved with a manufacturing
cycle are accrued and applied to specific goods (Spraakman And et.al., 2018). The accounting
principles allow this form of costing to establish an inventory value that is reported in an entity's
balance sheet.
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Working notes:
M2. Apply a range of management accounting techniques and produce financial reporting
documents
In an organizational context, there are several accounting techniques which are used to
calculate the profit of the company and with the help of it, accountant produce the financial
reports for the analysis of several stakeholders. Marginal or absorption costing techniques used
to evaluate the overall production cost and further helps in calculating profit. This information
helps the managers to produce profit & loss statement, balance sheet, cash flow statements etc.
D2. Produce financial reports that accurately apply and interpret data
It is important for Tesco Plc to view their financial statements in a way that their managers
can appreciate them and that they might make good decisions resulting in high-end productivity
and expansion will be of benefit to them (Usenko And et.al., 2018). This is helpful to the
business in prominently achieving its goals by which they can reach great market image. The
annual reports contains the balance sheet, income and loss account and several more ways that
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they need to be evaluated in the most suitable way in order to be able to determine the true
financial situation.
CONCLUSION
From the above discussion it has been observed that management accounting plays essential
role which help the managers to identify overall performance of the business operations and also
find the ways to improve it. Management accounting systems used to improve the overall
performance and further it will record in the accounting reports for the future references. With
the help of reports, managers are able to make strategies for the improvement of overall
performance as well as productivity.
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REFERENCES
Books & Journals
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