Analysis of Management Accounting Systems and Reporting in Tesco Plc.

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Management Accounting
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Table of Contents
Introduction.................................................................................................................................................4
LO1.............................................................................................................................................................5
P1 Explain management accounting and give the essential requirements of different types of
management accounting systems.............................................................................................................5
P2 Explain different methods used for management accounting reporting..............................................7
M1 Evaluate the benefits of management accounting systems and their application within an
organizational context..............................................................................................................................8
D1 Critically evaluates how management accounting systems and management accounting reporting is
integrated within organizational processes..............................................................................................9
LO2 P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs..........................................................................................................10
M2 Accurately apply a range of management accounting techniques and produce appropriate financial
reporting documents..............................................................................................................................13
D2 Produce financial reports that accurately apply and interpret data for a range of business activities14
LO3...........................................................................................................................................................21
P4 Explain the advantages and disadvantages of different types of planning tools used in budgetary
control...................................................................................................................................................21
M3 Analyse the use of different planning tools and their application for preparing and forecasting
budgets..................................................................................................................................................24
LO4...........................................................................................................................................................25
P5 Compare how organizations are adapting management accounting systems to respond to financial
problems................................................................................................................................................25
M4 Analyze how, in responding to financial problems, management accounting can lead organizations
to sustainable success............................................................................................................................26
D3 Evaluate how planning tools for accounting respond appropriately to solving financial problems to
lead organizations to sustainable success...............................................................................................27
Conclusion.................................................................................................................................................28
References.................................................................................................................................................29
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Introduction
This assignment explains about the management accounting systems and their methods. It also
describes the role of management accounting. All the reports are created under management
accounting. Through this, the data is provided to the management, by which an organization
takes decisions for achieving its goal and improve efficiency. Tesco Plc. is a British company
that is associated with grocessories and general merchandise. It is headquartered in England, UK.
This assignment will explain how budgetary methods use for planning and control tools and also
describes how these management accounting systems can help the company with its competitors.
The main objective of any organization is to maximize its profit so some tools and techniques
used by the organization. (Chenhall & Moers, 2015). Here in this report, we will discuss cost
accounting, financial planning, fund flow analysis, cash flow analysis, marginal costing, and
budgetary control to maximize profit for an organization. This will also tell about the
management accounting methods that respond to financial problems using benchmarking, key
performance indicators and activity-based accounting. At the end of the report, this will tell how
management accounting is useful for financial problems.
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LO1
P1 Explain management accounting and give the essential requirements of different types
of management accounting systems.
Management accounting is a very important concept to understand to manage the financial
system of any organization. Management accounting is needed by all organizations for managing
business activities. Through the management accounting system business can find out the actual
financial position of the company, by this system businesses can analyze the liquidity position of
the company to meet the financial duties of the company.
According to Weygandt, et. al., (2018), Management accounting is the system of collecting,
preparing, analyzing, identifying and controlling the financial and accounting information of the
company. This information's are presented with the help of various management accounting tools
to make the information useful and easy to understand so that the management and interested
parties can take the decisions regarding investment decision and for business-related decisions.
Various tools and techniques are the cash flow statement, budgetary control, fund flow
statement, ratio analysis, etc.
For making the data useful and understandable a professional person is required and that person
is named as a management accountant. It is the work of Management accountants to use their
knowledge and skills in making the data useful for management to take the long term as well as
short term decisions for the organization.
A management accounting system is required for these systems which are as follows:
Price optimizing system:
Optimizing means the best use of a resource or situation. So in the price optimizing system that
price is determined for the products which are best suitable for the product with compare to other
competitors in the market of the same product. This technique is used for analyzing and decides
the best suitable price for the product.(Gupta, et. al., 2019).
Requirements of price optimizing system are as follows:
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• The detailed information and data are required or market trend for applying the system
successfully.
• The strategies followed by the competitors have to be considered.
• The taste and preferences of the consumer’s behavior studied continuously.
Inventory managing system
As prescribed by Utami, et. al., (2018), Inventory managing system is a method by which it is
analyzed how much quantity of stock has to maintained all the time in the godowns. To analyze
the level of stock different methods are used which are FIFO, EOQ, Weighted average, etc.
This system’s essential requirements are:
• The security system and the controlling system should be well organized.
• How much quantity is used and wastes according to how much quantity should be
purchased all are recorded on a regular basis.
Cost accounting system:
This system is used for maintaining the cost price of the product and also analyzed that product
price will not in access as compare to the competitors of the same product in the market
(Karmakar, 2018).
Requirements of this system are:
• The cost of each and every item should be recorded accurately.
• Continuous checking in changes in resource allocation for making the product.
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P2 Explain different methods used for management accounting reporting.
According to Maas, et. al., (2016), different methods, tools, and techniques are used for making
the management accounting reports. These methods are useful in making decisions and
evaluation of market trends. Various types of management reports are:
Budgeting report:
This report helps us in planning how much money should be spent on various sectors of the
company. This report is also helpful I maintain the cost of the product due to planned
expenditures on various sectors and helpful in developing the image of the company also.
Performances reports:
This report shows the actual result of the work done by the employees in the organization. The
company can evaluate the performance through this report and can check to form the standard set
which was set initially before the work is started and analyze the variances in work and take the
measures for solving them.
Debtor aging reports:
This report is maintained for analyzing the bad debtors and good debtors of the company so that
the money incoming and outgoing ratio can be maintained. So the financial position of the
company can maintain in balanced form.
Demand report:
This report is maintained for getting the knowledge for future demand of the products in the
market. So that the company can present the product into the market whenever the demand
arises.
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M1 Evaluate the benefits of management accounting systems and their application within
an organizational context.
Management accounting is an important tool for understanding and managing the system of
finance of organizations. It is required to manage the activity of the business.
Management accounting system’s benefits are:
Better resource allocation:
This system is beneficial for allocating resources. This system gives the information on each and
every sector of the business and also gives information about future demand for the products so
that it will help in allocating the resources optimally.
Control over expenses:
Budgetary control report helps in controlling the over expense occurred on the production of the
products. By this system, the budget of the company is maintained.
Measurement of the performance:
This system is also helpful in the measurement of the performance of the organization. It is
helpful in performance appraisal also. This appraisal is helpful in analyzing the standard and
actual performance of the organization and helps in maintains the gap between the standard and
actual performance.
Risk assessment:
This system is also beneficial in analyzing the risk factor concern with the organization. This
system maintains all the records of finance on a regular basis. Because business contains risk at
every time. It maintains the data in a systematic manner so it is easy to find the area of problems.
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D1 Critically evaluates how management accounting systems and management accounting
reporting is integrated within organizational processes.
Management accounting reports and management accounting systems both are very much
important for the success of any business plans. Both the systems are parallel required for the
effective running of the business and both are interrelated to each other because without system
reporting can't be done and without reporting system can't work so both are required for the
business crucially.(Sardi, et. al., 2019). Both the activities integration in the business is:
Decisions:
Management accounting system and management accounting reporting both the systems are
important for taking business decisions. Management can take an effective and accurate decision
only when these both systems give the information correct and accurate. The success of the
business totally depends on the management of the organization. For the smooth running of the
business management should be good if management is not good then the success of the
organization is in doubt.
Removal of the financial crisis:
Financial data should be maintained on a regular basis without any mistake because the success
of an organization completely depends on the record of the financial transactions occurred in the
business. It helps in meeting the demand for the products and cost-cutting and also helpful in
enhancing the profit ratio. (Steccolini, 2019).
Continuous improvement:
Business needs continuous improvement for surviving in the competitive market because market
trend change in the present scenario is very fast and to meet that level continuous improvement is
required.
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LO2
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs.
Costing is a process by which the price of a product decided by adding all the expenses incurred
in the production of the product and by adding the margin in the cost price the actual selling
price of the product is obtained which was present in the market in front of the customers to
purchase. The costing method explains the details of the expenses involved in the making of the
product so an organization can easily check the details of expenses and if required it can cut
down the price of the product also by removing unnecessary expenses. (Netten & Beecham
2018).
Absorption costing
Absorption costing also we can say it total cost because it involves all the cost related to making
of the product as a fixed cost, labor cost, overhead cost, administrative cost, material cost, the
variable cost, selling cost.
Marginal cost
It can be defined as an additional cost. Marginal cost is calculated as the difference between total
cost and changes in total cost by producing one additional unit of a commodity. In this costing
method fixed cost always remains fixed and variable cost changes according to the change in
production level.
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Example of absorption and marginal costing is as follows:
For XYZ company:
Income measurement through absorption cost method for the year ended 30 June 2017
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Income measurement through marginal cost method for the year ended 30 June 2017
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