Analysis of Management Accounting Practices in Tesco Plc

Desklib provides past papers and solved assignments for students. This report analyzes Tesco Plc's financial performance using management accounting.

MANAGEMENT ACCOUNTING
1

Contents
INTRODUCTION:..........................................................................................................................3
LO1..................................................................................................................................................4
P1:....................................................................................................................................................4
P2:....................................................................................................................................................6
M1:...................................................................................................................................................7
D1:...................................................................................................................................................8
LO2:.................................................................................................................................................9
P3:....................................................................................................................................................9
M2:.................................................................................................................................................14
D2:.................................................................................................................................................15
LO3:...............................................................................................................................................17
P4:..................................................................................................................................................17
M3:.................................................................................................................................................20
LO4................................................................................................................................................21
Conclusion.....................................................................................................................................25
References......................................................................................................................................26
2

INTRODUCTION:
In the context of the study of management accounting, it has been explained in brief about the
management accounting tool and management accounting system. Here the Tesco Plc. company
is selected. The Tesco Plc. is a British multinational company and was founded in 1919 by Jack
Cohen. The first business of the Tesco Plc. was set up in Barnet in 1931 and expanded with high
revenue, and in 1939 the company spread their business and opened over 100 shops in the
country. This company is a general merchandise retailer dealt in the business of selling groceries
items. In this context, it has been discussed on the topic of management accounting and its tools.
The company of Tesco Plc. is devoted to providing general items in the retail business sector,
encourages the other retail businesses and programmed management with the help of five
professionalism dimensions. How planning tools, the different cost has been integrated into
Tesco Plc. company and advantages and disadvantages of planning tools discussed to know
about the marketability of the Tesco Plc. company. Thiscompany is under the top 10 companies
in the UK and in the world. It is the third highest company in terms of earning revenue in the UK
and achieved a ninth position as a retailer in the world.
3

LO1.
P1:
Management accounting is also known as the accounting of managerial. Management accounting
is the processor steps provide for analyzing the different business costs and by using that
business costs to produce reports of financial management accounting for the internal purpose.
By analyzing costs it will directly help in management part for taking the decision regarding
business expansion and for achieving business specified tasks. It is the special task performed by
the management department that includes management decision. Preparation of financial
accounts is the management integral part prepared by the accounting department for the purpose
of using by external and internal users as well (Richardson, 2017). The external users are
government, lenders/borrowers, banks and the internal users are stakeholders that take part in the
management and board meeting. The company takes the financial position for making a decision
and search the ways that the organization run smoothly efficiently.
Various types of Management accounting system are below:
In Tesco Plc. the company uses various types of company accounting system in management are
the following:
 Inventory costing system: Inventory means stock. It helps in checking and maintaining
the stock level of inventory in go-down (warehouse). By the use of this costing system,
management makes a tight control on over and unnecessary wastage of inventory.
 Job costing system: It refers to the cost of a specified or particular job cost. This cost
system help in distributing the overall cost of the job as per the job finished. This cost is
mostly used by that company where work in progress in high. It also helps in
reimbursement of cost for the job (Breuer, et. al., 2013).
 Price optimization system: This costing system is used by the Tesco Plc. to calculate by
what percent of demand fluctuate for finding customers who are ready to pay a maximum
price. It also helps in fixing the price of the product used by Tesco Plc. company.
4

 Costing accounting system: It provides channels to Tesco Plc. company for recording
the inventory level in management. This cost is used by the cost management department
for analyzing the cost of a particular for the Tesco Plc. profitability.
5

P2:
Report of management accounting is prepared every year by the management of Tesco Plc.
company whenever needed. It aids the company management by the different methods of
reporting. The report of management accounting help in checking and execution of work that has
been prepared earlier throughout the year. It is prepared by the management department of Tesco
Plc. when needed by the company as a weekly, fortnight and monthly or even on a daily basis.
Here are some management accounting reports that help in Tesco Plc. company:
 Cost report: The report of the cost is included only the cost of a particular job or task
related to the the job. This report helps Tesco Plc. company for finding the profitable area
by comparing with estimated revenue. And it also assists the company to determine the
cost of work in progress job. This cost is used in order to minimize unethical and
unwanted cost like over wages cost (Daraban, 2017).
 Accounts receivable report: This report helps in determining the cash available in the
Tesco Plc. company. It helps in ascertaining the financial position of a particular
customer of the company by the break down their position on a short period. If the
collection process of the company is not good then it also helps in developing the
collection process by implementing a credit tight policy.
 Manufacturing/inventory reports: This report is used for making manufacturing unit
profitable and these are mainly usable by the managerial persons. Under this report, it
contains labor hour cost, inventory cost. To make improvement in manufacturing unit and
inventory level, this report is used by the related person for comparing different assembly
lines.
 Budget reports: It is prepared by taking previous data and plans that adapting for the
future. These reports show the overall cost of the projected plan that has been estimated
for future goals achieve. This report is prepared in the current time for determining the
estimated future cost for making a comparison for achieving desired tasks (Daraban,
2017). For achieving the desired task, all the department of Tesco Plc. the company
makes full efforts in order to achieve their task as per budgeted reports.
6

7

M1:
Various benefits have been derived by management accounting. These benefits help to increase
the overall profitability of Tesco Plc. company. Competitive advantage has been developed by
using this.
 Planning: It is the first and foremost step in making a budget. Every business starts with
planning. It helps in forecasting and making the plan for future business activities. In this
section of planning it includes information related to a particular product. From this
resultant data, it will assist in managing to set objectives and provide a manner of how
the desired objectives have been achieved.
 Controlling: The information has been taken from the planning report helps the
management to manage and control over the affairs of the Tesco Plc. company. Through
this, the manager can use this information to exercise feedback (quantitative and
qualitative). As the information is taken by the internal users of the company they cannot
follow the GAAP (General Accepted Accounting Principles).
 Strategic management: This type of accounting report help in changing decision in
relation to improvement in the new and existing product. It helps the management of the
company to take a decision based on accounting principles.
 Decision making: As the management obtained information from the above different
reports it helps in taking a decision regarding customers, market and other related
information that help in management for making a decision (Gornjak, 2014).
Use of management accounting is to reduce risk related to the decision-making process. A
report showing inventory waste or any other wastage of money or in kind might help the
managers to take corrective measures. For instance, a manager can be compared his lines to
his followers, or to the compared previous time period (Gornjak, 2014). The person
responsible make reports of producing goods on a cost, expenses in relation to employees
training programs and marketing cost other activities.
8

D1:
To use Tesco Plc. company resources, managerial accounting helps to take the use of the
company resources in an optimum way (Makrygiannakis, and Jack, 2016). Ultimately this will
assist the company to manage and control on the overall performance of the company.
Following are the tools that help in Tesco Plc. company department by which analyze and make
decisions:
 Assist in minimizing contrast.
 Assist in developing and creating a good atmosphere.
 Assist in making decisions regarding managerial.
 Coordinating among the different department.
 Use of resources at optimum.
9

LO2:
P3:
Cost is the monetary value that is used to buy something from the other people who are willing
to take cash in respect of their product. Cost is the amount in physical that has to be used for
paying to get something in return is termed as cost. Cost is charged against the selling of a
product or providing services. It is also used in the process of production and manufacturing of
goods and providing services. Break-even point is referred to such a situation where both the
parties either seller or buyer get benefits. This situation arises when the seller sells their product
at cost price (without including profit).
Different types of the cost incurred in goods or services. Some of them are as below that have
been included:
 Fixed cost: Fixed cost refers to that cost where a change in cost is not possible. It is
always the same at a constant rate even the production increase or decreases upto the
particular level of production. Examples- rent of land and building, salary and wages,
premium, etc.
 Variable cost: It refers to the cost where the cost changes as per the production of
inventory changed. In simple word, variable cost depends upon the production of units.
Example- direct material, direct labour, etc.
 Semi-variable cost: It is the combination of fixed cost and variable cost. Most of the
product is available in Tesco Plc. the company that incurring such cost.
 Direct cost: It refers to that cost which is directly related to the production of cost.
 Indirect cost: This cost is may be either fixed or variable cost depending upon the nature
of production. It refers to that cost which is not directly accountable to a particular job.
10

Marginal costing system: when to reduce or minimize the cost of production, this cost is
used. It is the cost of adding of 1 unit in the production. Under marginal costing system, fixed
cost is treated as the cost of the same period whilst variable cost is treated as production cost
(McLaren, et. at., 2016). Marginal cost is the sums of its all cost of direct material, direct
expenses, direct labor, and direct overhead related to the task. So as the volume of sales
increase and production increases total cost also increase proportionately. In marginal cost,
the cost of the variable is charged against the cost of the goods and fixed cost is written off
against the accumulated contribution.
Particular Amount (£)
Number of units sold 20,000
Unit price(per unit) 50
Cost of direct Material 100,000
Cost of direct Labour 60,000
Variable overhead (manufacturing) 40,000
Fixed overhead (manufacturing) 80,000
Admin expenses and Variable selling 60,000
Admin expenses and fixed selling 60,000
11

12