Accounting Report on Tesla: Analysis, Justification, and Action Plan

This report provides an in-depth analysis of Tesla's accounting practices, focusing on key areas such as cost allocation, transfer pricing, and budgeting. It examines the company's tax liabilities and suggests strategies for improvement. The report emphasizes the importance of employing transfer p...Read More

Accounting

Executive Summary
Accounting is the vital part of business unit which in turn provides information about the
extent to which it has made effectual use of financial resources. This project report is based on
Tesla which is one of the leading automobile companies and lays emphasis on offering quality
products at affordable prices. It can be summarized from the report that business unit should lay
emphasis on undertaking transfer pricing and budgeting tool. This in turn helps firm in reducing
the liability in relation to tax and assists in exerting control over expenses.

Table of Contents
INTRODUCTION...........................................................................................................................1
ANALYSIS AND JUSTIFICATION..............................................................................................2
ACTION PLAN...............................................................................................................................5
ETHICAL ISSUES..........................................................................................................................6
REPORTS’S STRENGTHS AND WEAKNESSES.......................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
In the recent times, with the motive to make optimum utilization of finance company lays
high level of employing the system of accounting. By using cost and management accounting
system firm can get information about its financial performance and aspect. Such accounting
systems are highly significant which in turn helps company in developing highly competent
framework for the upcoming time period. Moreover, cost is one of the main factors which have
direct influence on customer decision making and company’s profitability. In this, techniques of
management and cost accounting provide high level of assistance to the manager in taking
strategic move. The present report is based on Tesla is the leading organization that operates in
automobile sector and makes focus on providing customers with attractive cars. It was
established in 2003 with the motive to prove that electric cars are better and offer amazing
experience to the customers as compared to gasoline powered cars.
Mission of Tesla is to speed up the aspect of sustainable energy. Business unit has
introduced various models in the market such as Roadster and Model S etc. Such models have
made remarkable contribution in the growth and success of firm. Further, company is also
placing high level of emphasis on the expansion of manufacturing footprints in other areas such
as Tilburg and Netherland. To reduce the cost level several strategic actions or measures have
been undertaken by Tesla (About Tesla, 2017). Besides this, firm will make focus on producing
batteries that will be used for stationary storage. By this, firm can improve the robustness of
electrical grid and thereby would become able to reduce the cost level. In this, report will provide
deeper insight about the techniques which Tesla should employ for ensuring effectual
manufacturing operations.
Article Assessment: By doing evaluation of given article in relation to cost allocation it
has been found that higher authority or management team is required to take decision which in
turn maximizes shareholders value. In the business organization, managers face difficulty in
assessing the extent to which plant expense should be assigned to sales units. Article depicted
that by employing the concept of transfer pricing one can make cost allocation in the best
possible way. It has been assessed from, overall investigation that allocation of cost must be in

line with the market prices. In addition to this, findings of article present that transfer price can
easily be negotiated in line with the market discipline. Further, market discipline can be attained
through the means of transfer auction. It enables service provider or give right in relation to
refusing the transfer price which is being proposed by other party. By threatening the level of
arbitration between service provider and user high level of market discipline can be maintained
(Marota and et.al., 2017). Article also presents that long term needs of customer group can be
met because it is used for both discrete expense level and package of spending as well as
investment. On the basis of transfer auction strategy firm should not shift all the risk to sales
units.
Manufacturing companies also have an option to bear some of risk related to revenue for
attaining reward. It shows that risk related part can be negotiated for enhancing the share of
reward significantly. Given article also presents that the concept of transfer auction is highly
suitable for the for the large sized business organization. Besides this, such method also gives
suitable outcome to network based organization such as transportation and telecommunication.
Outcome presented in the article shows that large and complex business units demand for formal
system. However, largest business units can also undertake such decision rules without
performing more formalities. Thus, it can be stated that method of transfer auction and associated
aspect pertains to negotiation and arbitration will make significant contribution in the attainment
of organizational goals.
ANALYSIS AND JUSTIFICATION
By doing analysis, it has been assessed that tax liability of firm is continuously
increased. In the accounting year 2012, tax provision was zero, whereas it reached on £27
million at the end of 2016. Hence, it can be said that tax burden of Tesla was very high which in
turn has direct impact on the profitability aspect of firm. Thus, it is one of the main issues that is
facing by the business unit. In this regard, by following the below mentioned guidelines firm can
control over expenses and tax liability. This in turn helps firm in resolving such issues to a great
extent:
 It is advised to Tesla to make allocation of cost or overhead in accordance with the
expenses incurred for producing or selling specific number of units. Moreover, firm

incurs both direct and indirect expenses to derive the standard level of output. In this
regard, by assessing alternative ways of performing activities Tesla can control cost to a
great extent. In the context of Tesla, material, labour are the main direct costs which
business has to incur for ensuring smooth functioning of operations (Taschner and
Charifzadeh, 2016). In addition to this, there are several indirect expenses such as selling
and distribution, administration etc. that Tesla incurs for accomplishing the activities in
an effectual way. Thus, it is recommended to the firm to make continuous monitoring of
such direct and indirect expenses. Moreover, both such are the main elements that have
direct influence on cost level and thereby profit. Thus, it can be stated that Tesla can exert
control on both direct and indirect expense through the means of continuous monitoring.
 By considering the findings of articles it is recommended to Tesla to make focus on
employing suitable budgeting tools and techniques. Moreover, budget is the financial
expression of activities that need to be performed during the specified time frame. In
budget, amount is allocated by manager to each business activity on the basis of
estimation and market trend (Pondeville, Swaen and De Rongé, 2013). Thus, Tesla
should make focus on the adoption of zero base budgeting technique which in turn helps
in making optimum usage of funds. On the basis of such management accounting
technique, finance manager of Tesla should assess the ways through which
manufacturing activities can be performed in the best possible way at lower price level.
This in turn helps manager of Tesla in avoiding redundant activities and ensures effective
utilization of funds. By preparing suitable budget, manager can also guide personnel
about the manner in which they need to carry out activities. Hence, by doing this,
practices in relation to over-utilization can be restricted.
 Further, the main motive of firm is to maximize the level of profit significantly by
making control on cost level. Hence, through the means of continuous monitoring via
standard costing Tesla would become able to make control on cost level (Rugman and
Eden, 2017). On the basis of standard costing or variance analysis technique by making
comparison of actual figures in against to the budgeted aspects Tesla can easily find out
deviations. For instance: By making assessment of labour cost over standards adverse
results has been found. In this, there are several reasons that associated with negative
labour variances such rise in per hour rate, inefficient performance etc.

Thus, by doing investigation manager can identify the suitable cause due to which deviation
is occurred (Baxter and et.al., 2013). For example: if the cause of deviation is inefficient
performance by the employees then by conducting training session performance can be
improved. Moreover, training offers opportunity to the personnel to enhance their competency
level and perform activities more efficiently. In this way, by applying the technique of variance
analysis Tesla would be in position to take strategic move or action within the suitable time
frame. Thus, it can be presented that such management accounting technique is highly significant
which in turn helps company in attaining success.
 In addition to this, business unit should make focus on the adoption of negotiation
strategy in the case of transfer pricing. Moreover, when the transfer price is too low
then there is the possibility that upstream division will refuse in relation to selling the
goods at downstream level. The rationale behind this, such aspect has direct impact
on the profit maximization goal of business unit. With the motive to attain higher
profit margin usually business units take decision in relation to selling the goods or
services at downstream level (Tran, Croson and Seldon, 2016). Thus, by employing
negotiation strategy Tesla can do the best deal with the subsidiary company and
thereby would become able to generate higher margin. In addition to this, for the
attainment of objective in relation to high profit manager works at upstream level of
division can refuse to fulfil internal orders and execute deal with the outsiders.
Tesla can apply such strategy only when it has choice in relation to selling goods or
services either at downstream level or to outsiders. This strategy will help Tesla in making profit
in short run because outsiders are considered as temporary customers. Such strategy regarding
dealing will offer higher incentives to the firm. However, such strategy will not provide high
level of assistance to the firm in using their capacity level to a great extent. Thus, such division
will suffer from the aspect of unused capacity. Thus, by employing strategies as per the situation
firm would become able to gain incentives to the large extent. Along with this, Tesla would also
become able to limit the tax liabilities by employing the transfer pricing strategy. For instance: If
downstream division of the firm is suffered from high tax obligations as compared to upstream
level then transfer pricing strategy can be used for lowering tax bill (Christ and Burritt, 2017).
Thus, it is suggested to the firm to undertake transfer pricing strategy or method.

 Along with this, Tesla should lay emphasis on marginal costing method. Such costing
method is highly effectual that furnishes information about the cost which business
unit will incur on the production of one additional unit. Besides this, marginal costing
method will also enable Tesla to assess BEP level which in turn clearly indicates the
point where the situation of no profit or no loss will take place (Umeda, 2016).
Hence, by getting information about such aspect firm would become able to take
suitable decision.
ACTION PLAN
On the basis of recommendation provided, manager has taken decision in relation to
employing transfer pricing and budgeting tools are:
NO. Action review issue Start Date Responsible Finished Date Year end
1
Development of goals
regarding transfer
pricing and adoption
of budgeting tool
1-
August-
2017
Finance
personnel
10-August-
2017 2017
2
Making discussion
with higher
department regarding
the concerned action
11-
August-
2017
Higher
management
and finance
team
22-August-
2017 2017
3
Developing plan in
relation to applying
the concept of
transfer pricing and
budgeting within
Tesla
23-
August-
2017
Finance
team of
Tesla
6-
September-
2017
2017
4 Implementation of
planned strategies
7-
September-
Team
members of
22-
September-
2017

2017
Tesla’s
finance
team
2017
5
Monitoring of the
success of strategies,
controlling and
making changes
23-
September-
2017
Higher
department
30-
September-
2017
2017
By considering the above it can be stated that in the month of August and September of
2017 higher management team of Tesla will implement plan. By making discussion with the
members of higher management team suitable goals have been setting down by finance
personnel. Hence, by considering the specific guidelines personnel of finance team will execute
the plan. On 30th September, higher management team will monitor the performance and thereby
take corrective measures for improvement.
ETHICAL ISSUES
For manufacturing automobiles with appropriate quality, Tesla has setting down some
standards that employees require to follow while carry out business practices. This strategy will
reduce the possibility of errors in operations to a great extent. If as per the guidelines if
employees will regularly make evaluation of automobile and found no error then it will place
negative impact on their morale. In addition to this, Tesla has undertaken advanced technologies
with aim to make significant contribution in the aspect of environment sustainability. For
meeting the expectation level of local people company has taken initiatives regarding sustainable
environment (Fleischman and Parker, 2017).
However, manufacturing activities generate huge amount of scrap or waste material that
may result into high pollution. Companies which are involved in manufacturing aspect of
automobile are not in position to contribute in the aspect of zero pollution. Hence, such ethical
issue imposes high level of problem in front of automobile companies like Tesla. Thus, for
resolving such ethical issues it is highly required for the firm to develop sound strategic and
policy framework which helps in reducing the level of pollution to a great extent. For instance:

by establishing solar plants within the firm, Tesla can save electricity to the significant level. In
addition to this, by undertaking waste management strategy or system firm can enhance success
to a great extent. If business unit will employ the concept of transfer pricing and take decision in
relation to providing material to outsiders then it closely influences the downstream operations.
In this way, decision in relation to the adoption of transfer pricing will closely affects the
operations of other department to a great extent. Along with this, in the case of budgeting,
according to the zero base technique, Tesla requires high involvement of staff resides at different
level of all the departments. This aspect shows that involvement of individuals from each
department closely influences the level of productivity and profitability. Hence, such ethical
issues affect the execution of concerned plan to a great extent.
REPORTS’S STRENGTHS AND WEAKNESSES
By considering the above findings it has been assessed that the present report has placed
emphasis on cost accounting approaches that firm need to employ. Besides this, several
management and cost accounting tools as well as techniques suggested to the Tesla by
conducting in-depth investigation. Thus, all the recommendations in relation to standard costing,
variance analysis and transfer pricing has been made on the basis of article assessed related to
cost allocation. The main weaknesses of this report are that high level of emphasis is laid on
internal aspects or perspectives. While conducting evaluation of business performance and aspect
only internal factors have been considered rather than external. Moreover, factors related to cost
and management accounting represents internal performance. In the real life, external factors
also have significant impact on the aspect of costing (Goddars and Simm, 2017). Hence,
avoidance of external factors is one of the main aspects which in turn closely influence the
significance of this report.
CONCLUSION
From the above report, it has been concluded that Tesla should make focus on the
adoption of management accounting tools and techniques. By employing transfer pricing strategy
as well as other relative systems firm can make control on cost level and thereby would become
able to generate high margin. Besides this, it can be inferred that by undertaking standard costing

system and budgeting firm can make optimum utilization of funds. Along with this, it has been
articulated that through the means of effectual monitoring manager of Tesla would become able
to assess deficiency level and would become able to take strategic measure within the suitable
time frame.

REFERENCES
Books and Journals
Baxter, R. and et.al., 2013. Enterprise risk management program quality: Determinants, value
relevance, and the financial crisis. Contemporary Accounting Research. 30(4). pp.1264-1295.
Christ, K.L. and Burritt, R.L., 2017. Water management accounting: A framework for corporate
practice. Journal of Cleaner Production. 152. pp.379-386.
Fleischman, R. K. and Parker, L. D., 2017. What is Past is Prologue: Cost Accounting in the
British Industrial Revolution, 1760-1850 (Vol. 6). Routledge.
Goddard, A. and Simm, A., 2017. Management accounting, performance measurement and
strategy in English local authorities. Public Money & Management. 37(4). pp.261-268.
Marota, R. and et.al., 2017. Material Flow Cost Accounting Approach for Sustainable Supply
Chain Management System. International Journal of Supply Chain Management. 6(2).
pp.33-37.
Pondeville, S., Swaen, V. and De Rongé, Y., 2013. Environmental management control systems:
The role of contextual and strategic factors. Management Accounting Research. 24(4).
pp.317-332.
Rugman, A. M. and Eden, L. eds., 2017. Multinationals and transfer pricing. Routledge.
Taschner, A. and Charifzadeh, M., 2016. Management and Cost Accounting. John Wiley &
Sons.
Tran, Q. H., Croson, R. T. and Seldon, B. J., 2016. Experimental Evidence on Transfer
Pricing. International Journal of Management and Economics. 50(1). pp.27-48.
Umeda, K., 2016. Japanese Multinational Enterprises’ Preventive Actions Against Transfer
Pricing Taxation. Management of Innovation Strategy in Japanese Companies. 13. p.215.
Online

About Tesla. 2017. [Online]. Available through: <https://www.tesla.com/about>. [Accessed on
6th July 2017].