TESCO PLC: Evaluation of Management Accounting Techniques and Factors

This report delves into the management accounting practices of TESCO PLC, providing a comprehensive analysis of various aspects. It begins by examining the purpose and presentation of financial information from the perspective of different stakeholders, including internal and external groups such as board of directors, employees, banks, creditors, customers, and shareholders, highlighting their specific information needs and the impact of globalization. The report then evaluates the application of microeconomic techniques, specifically focusing on marginal and absorption costing, outlining their advantages, disadvantages, and effects on organizational performance. Furthermore, it identifies and assesses the influence of both internal and external factors, such as market conditions, competition, and internal operational efficiencies, on TESCO PLC's overall business performance. The report also includes a discussion on cost accounting, budgeting, and budgetary control techniques. The report aims to provide a detailed understanding of how management accounting supports decision-making and strategic planning within TESCO PLC.

Advance management
Accounting

Table of Contents
INTRODUCUTION........................................................................................................................6
LO1..................................................................................................................................................6
P1 Analyzing the purpose and presentation of financial information with the viewpoints of
different stakeholders...................................................................................................................6
LO2..................................................................................................................................................9
P2 Evaluation of usage of various microeconomics techniques in application and support of
organizational performance.........................................................................................................9
LO4................................................................................................................................................12
P5 Evaluation of external and internal factors which changes the environment of business and
have an impact on the management accounting........................................................................12
CONCLUSUION...........................................................................................................................15
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INTRODUCUTION
Management accounting is also termed as managerial accounting where managers
undertake the provisions of the accounting information’s and statistical data in order to batter
inform themselves over a decision and make an informed business decision. The management
accounting assists the management of the company in decision making process as well in the
strategic planning of the organisation so that it can perform effectively within controlled
functions. Under the management accounting falls different techniques, reporting and budgeting
and accounting techniques which help of which management of a company evaluate its
performance and analyses the business’s financial as well non-financial position. In the present
report a detailed discussion related with all the techniques and other factors of management
accounting are going to be discussed for the organisation TESCO PLC. In this regard the
stakeholders of the organisations are identifies and the key information required to be presented
to them is analyses along with its use along with effects of globalization. Moreover, the different
accounting microeconomics techniques applying in TESCO PLC are evaluated such as marginal
and absorption costing along with their advantages and disadvantages and effects on the
organisation. Furthermore, the internal and external factors which affect the performance of the
business are determined and how they have an impact on the business performance is evaluated.
LO1
P1 Analyzing the purpose and presentation of financial information with the viewpoints of
different stakeholders
Stakeholders and their relation to financial information:
Stakeholders:
The stakeholders of a company can be defined as those people or organisation who are
connected to the operations and functions of the business and have a direct impact on their
decision making by the performance of the company at global level. These are the people who
have a direct link with the organisation and can affect and get affected by the action of company.
The stakeholders can be termed as any person, organisation, social group or society at large that
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has a stake in the business. They can be both internal and external and have possess vital interest
in the business activities as they have long term or short term interest in the business which can
be related to investments, returns, payrolls, interest and other financial and non financial
benefits.
Generally there are two types of stakeholder recognized for an organisation and same are
for TESCO PLC, which includes internal and external stakeholders. The internal stakeholders of
TESCO PLC are the employees, board of directors and external stakeholders are the consumer
from around the world, creditors, banks and shareholders. All these stakeholder have a direct
interest in the financial and non financial information of the company as they make their decision
on the financial position and performance of the business regarding investing in the firm,
potential of the company to pay out its debts, legal compliances as per the accounting standers,
policy and taxation rule, the capability of company to pay out the salary and others.
Stakeholders and information requirement
Internal stakeholder:
Board of directors:
The board of directors are key personnel on TESCO PLC who are responsible to operate
the business and carry out the business activates of the company. The information they need is
all the financial statement such as P&L a/c, balance sheet, statement of shareholder equity,
statement of cash flow investments and others. With evaluating all these document they can
determine the performance of the company at global level and make decision accordingly such
as if cash and funds are surplus to invest in expansion and dividend distribution. If the company
is not performing well then to make plan how to raise funds and get back to the better position.
Employees:
The Employees also see the financial position of the business and potential of the
business to grow. A well performing company TESCO PLC ensures the salary and bonus to the
employee which is their key concern and future growth of company also endures the employee’s
growth as well both financial and professionally.
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External stakeholders
Banks:
TESCO PLC takes loans and advances form the different bank to back up its funding for
the business operations. The banks are always concerned about the repayment of the principles
amount along with the interest. In this regard the financial statement of the company revels the
actual position of the business and can be referred as mirror of the business performance.
Globalization have a direct impact on business as this effect may factor of Tesco. A business
which is doing well shoes a potential of repayment of loan of lime rather a business with
decreeing profits and cannot be said to pay the debt on time. With this banks can take measures
on time to recovers it debt form the company.
Creditors:
The creditors are the one who lends money to the company TESCO PLC on certain
terms and company is required to repay them. This can incudes the suppliers who send the
material and equipment on credit to the organisation for getting a payment at a letter date. The
financial information of the business for years, if seen in a row significantly shows the direction
of the business operation and tis potential in payment to creditors, if the credit rating of company
is goods creditors and suppliers will automatically give credit to the TESCO PLC. but if the
credits rating of company is not good no one tends to extent credits as company can default in
repayment of the credit amount.
Customers:
The customers are other stakeholder who has keen interest in the financial information of
the company. They have an interest as by looking into the financial position of the business that
can make diction to invest in the company and become shareholders of TESCO PLC. Also, a
good performing business makes stronger connection with the customers and they tend to
becomes loyal consumers of the company.
Shareholders:
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Shareholders are the most important stakeholder of TESCO PLC as they are the owners
of the company and have a right to inspect the financial information of the company. They get
affected by the information and participate in certain specific decision making of the company
such as mergers, takeovers, expansion and others. The financial information is reveled through
the financial statement of the company which clearly shows that performance and position of the
company in monetary terms. The shareholders invite in the company and for a good performing
and rewarding firm they want to stay long. But a company who is not in a good position and a
loss with not paying dividend cannot ensure that its shareholders will stay with it for long. This
way the shareholders make their decision to stay, leave or to father purchase shares of the
coming on the basis of tis financial performance which can be seen through its financial
statements, key performance indicators, ratios and others.
With this it can be stated that both internal and external stakeholders have a direct interest
in the financial information of the business where they how TESCO PLC is performing and
how well it can meet is financial duties. All the stakeholders have interest in specific area of
financial information such a shareholder want to know the position and performance of
company as to dividend payment and the valuation of their shares. While the board of directors
have a direct interest in overall performance so that they can make decision according to make
the financial position of the business effective.
LO2
P2 Evaluation of usage of various microeconomics techniques in application and support of
organizational performance
Management accounting techniques:
The management accounting techniques are the one which analyses and evaluate the
financial and cost accounting information of TESCO PLC. Tools and techniques used under
management accounting are the financial planning, analysis of financial statement and cost
accounting.
Cost accounting and its purpose:
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The cost accounting is that branch of accounting which is used as techniques having a
goal to provide advice to the management on how to optimize the practices of business processes
based on the cost efficiency and capabilities of TESCO PLC . The purpose served by cost
accounting is that it issue information to the management for various purpose which includes
tuning of the operations for generation of higher profits, to take decision over cost cutting and to
match the actual cost with budgeted cost and spending to meet level controlling. Three of the
main purpose severed by cost accounting are:
 Cost control: means to put a control on the cost of production by evaluating the expenses
incurred and then to rule out those which are not required and to lessen the cost in terms
of different elements of cost such material, labour and overheads. Cost computation: means to determine actual coat of production incurred on a
manufacturing each unit of good. The cost accounting system assists in determining each
element and the expenses there to as well. Cost reduction: the cost accounting system determined each cost element so it is easy to
identify that where the expenses are incurred and how cost can be reduces through
elimination of unnecessary cost and by cutting cost.
Cost volume Profit analysis:
The cost volume analysis is the method of the cost accounting that looks at the impact
which different level of cost and volume have on the operating profits of Tesco. In this several
assumptions are made on sale price, fixed cost, variable cost per unit. All of them are considered
constant when determining the impact of change in cost at different level of production.
Marginal and absorption costing
Marginal costing:
Under the marginal costing techniques the Tesco the fixed are treated as period cost. In
this the organisation treats all the variable cost as the part of contribution and the fixed cost are
charged from the period cost. No fixed costs are charged to cost of the product.
Absorption costing
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Under the marginal costing method the manufacturing fixed overhead are charged to the cost of
product by Tesco. This means that the variable cost and production overhead are part of
contribution and after that other fixed costs are deducted to reach the profits of the company.
Standard costing
The standard costing for Tesco can be defined as the estimated or the predetermined cost
for performing an operation or for production of a unit of goods or commodity or servings a
provision of service under the target cost by comparing the target cost with the actual cost.
Advantages:
The advantages of this costing method can be outlined as it can be used for product
costing for cost control. This assist in the decision making process of Tesco where the if
variance is high production must be diverted.
Disadvantages:
Disadvantage of this method if costing can be stated as it is time consuming, labor
intensive and expensive methods. As to compare the actual and budgeted performance require
comparison on regale time intervals which takes too much resources and time of Tesco.
Budgeting and budgetary control
The budging is a technique where various budgets for each activity carried out in Tesco
are made. These budgets forecast the budget expenses which each activity must incur while
carrying out its specified quantum of work. Some of the budgets prepared by Tesco are sales,
inventory purchase, account receivables, cost, revenue budgets etc. on the other hand the
budgetary control is a measure which is undertaken by Tesco to measure the performance on
the basis of budgets and than to take controlling measures to reach the pre determined outcomes
in the set funds. The budgetary control is done through planning tools which includes KPI,
balance score cars, ratio analysis etc.
Advantages:
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The main benefit of this techniques is that it set the goals for management and various
department of Tesco to achieve a certain outcome in given specific budgets which makes the
working more efficient and effective. This controls the cost of the organisation as well.
Disadvantages:
The major drawback of this method is that the budgets are prepared on assumptions
which cannot lead to a term and clear picture of the present situation and environmental
condition affecting the operations of Tesco. This is also time consuming, cumbersome and
expensive.
Capital budgeting and its importance
Capital budgeting is that techniques of management accounting which is used by the
Tesco evaluate the profitability and feasibility of different projects. These projects are related to
buying new machinery, replacing an old plant or any other investment where two or more
options are available to the business. In this situation capital budgeting works as live saver where
it evaluate the projects and available options through different methods such pay back period,
average rate or retune and net present value. This helps the Tesco to select the best option with
highest a timely profitability.
LO4
P5 Evaluation of external and internal factors which changes the environment of business and
have an impact on the management accounting
The business TESCO PLC operates in a dynamic global environment where things do
not remain constant for long. The factors which affect the business operations are every changing
in nature. These factors prevail both within and outside the organisation. they are generally
termed as internal and external factors that affects the business organisation and have significant
impact on the business operations as well as on the decision making process of the business.
Some of the key internal and external factors which affects the activities and functioning of
TESCO PLC are defined underneath:
External factors impacting business environment on management accounting:
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The External factors of the business environment having impact on the management
accounting system of TESCO PLC are the factors which exist outside the organisation nad at
global level and affect the economy as well as other organisation within same industry. These
factor and conditions and certain factors which are present outside the organisation can also have
direct and indirect effect on the businesses these includes:
Economic factor:
Economy is one of the most determining factors to the success of the company even
though it is an external element. Within the national and international economy, some
contributing factors such as the fluctuation of interest rate, economic crisis, and so on directly
and strongly affects the consumption of buyers, and consequently, the profits of businesses. Its
impact on the management accounting of TESCO PLC can be explained as with change
economy profits gets effected either adversely or positively with rise in the prices of the raw
material as well as the labour cost.
Legal factor:
The rules and regulations from local government play an integral role in the development
of the company. There are some countries which their laws prevents the development of some
certain industries. That can be a threat to the company. On the other hand, some industries
receive positive and continuous support from local government via their rules and regulations.
The impact of can be defined on TESCO PLC as it organization outside from the countries allow
them to invest in local industries, they will indirectly create an enormous source of financial
support for local business.
Political factor:
Lack of political stability in a country effects business operations. This is especially true
for the companies which operate internationally. Such as the current situation of Brexit could
overthrow UK government. This could lead to riots, looting and general disorder in the
environment. These disrupt business operations and Companies such as Tesco that have
international operations use political risk insurance to reduce their risk exposure. This can affect
the management accounting of TESCO PLC as the political changes trigger changes in the
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overall strategies of the company and the decision making process is required to made with
considering the changes in policies and rules.
Social factor:
The social aspect focuses on the forces within the society. Family, friends, colleagues,
neighbors and the media are social factors. These factors can affect our attitudes, opinions and
interests. So, it can impact sales of product and revenues earned. The social factors which impact
customer’s needs are lifestyles, buying habits, education level, emphasis on safety, religion and
beliefs, health consciousness through globalization as well. This can affect the management
accounting of the TESCO PLC as the prices are to be decide as per the trends and preference of
consumer as for high demanded product higher profit margin can be set and for lower
demanded goods prices must be kept low.
Consumer demand:
For TESCO PLC it is necessary to identify what people want, what people need, and
what they demand are usually different from each other. Customers need something to
communicate with their family member outside their countries, they want to a smartphone which
can perform multi-function; however, they cannot afford that smartphone with a limited budget.
Therefore, their demand is just a typical phone which can perform basic functions. If TESCO
PLC is not able to figure out what are your customer demands, organisation can face difficulty
in how to make the products consumed by customers.
Internal factors impacting business environment on management accounting
Business structure:
A significant and suitable organizational structure required the management of the
company to have full consideration and careful set up of the system of work organisation and
smooth distribution within the company. The organisation can have centralized and decentralized
system and its efficiency can be established on the application by the company. Its effect on the
TESCO PLC can be defined as the head of department needs to make sure that the information
flow is widely conveyed to all customers in all the countries of its operation. Its organization’s
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