Management Accounting – Tesco
Introduction
Managerial accounting is an important part of organisation management and is concerned with identifying, measuring, analysing, and interpreting accounting information to help the managers in making decisions (Drury, 2018). Generally, management accounting is concerned with internal reporting to help in making decisions. The managerial accounts need to analyse various events and operational metrics that can help in translating data into useful information that can be used by an organisation to make a decision. This report looks into various aspects of management accounting as employed by Prime Furniture. In this report, various factors will be addressed including
Introduction Of Management Accounting And Its Importance In The Decision-Making Process For Improving The Performance Of The Company
Managerial accounting information is used by the management to help[ in determining what they should sell and how to sell it. To make the decision, the accounting manager can examine the costs that differ between advertising alternatives for each of the products and ignoring the common costs. This is what is known as relevant cost analysis and it is a technique that can be used in teaching basic managerial accounting. Bromwich and Scapens (2016) assert that the same can help the managers in determining whether to add product lines or discontinue operations.
Further, Quattrone (2016) pine that one of the primary use of managerial accounting is to help in giving information that can be used in the manufacturing process. For instance, a small business owner may be thinking about whether to make or buy a component that is needed to manufacture a product (Drury, 2018). By completing a make or buy analysis, the business owner can determine which choice is more profitable. Bromwich and Scapens (2016) indicated that managerial accounting information also helps in providing the management with a data-driven look that can help them on how to decide to grow the company.
These decisions can be made by looking into the financial statements, budgeting, and having a balanced scorecard on how to use the managerial accounting information. By looking into data, Quattrone (2016) pine that managers can make decisions that aim at improving and making justification based on the company data. Managerial accounting also provides the managers with internal reports that make it easy for them to make decisions as well as to prepare for budgets and forecasts.
Explain The Different Types Of Management Accounting Techniques Used In An Organisation And Give Some Example In Context Of Prime Furniture
There’re are various management techniques that can be applied by Prima furniture to operate their businesses including financial planning, analysis of the financial statements, budgetary control, marginal costing, and funds flow statement.
Financial planning:
This is the act of deciding in advance about the financial activities that are necessary for Prime Furniture to achieve its objectives. Bromwich and Scapens (2016) opine that it involves the determination of both long-term and short-term financial objectives of the enterprises, formulation of financial policies, and the development of financial procedures to achieve the objectives of the company. The role of financial policies cannot be overemphasised as it helps the company to achieve its maximum return on capital that has been employed.
Analysis of financial statements:
The Company can use this technique to determine the significance and meaning of the financial statement data so that the forecast may be made of prospects for the future earnings for the company as well as their ability to pay interest and debt maturities and profitability of a sound dividend policy. Quattrone (2016) pine that this technique can be compared to trend analysis, financial statements as well as how forecasting should be done for the future earnings of the company. It also helps the management on how to pay interest and debt maturities and profitability of sound dividend policy. Using this technique helps in presenting information, this can help business executives, creditors, and investors in making decisions.
Budgetary control:
In this case, the management accountant of the company is required to use the tool for planning and control various activities of the company. An important technique directs business operations in the desired direction.
Funds flow statement:
In this technique, the company management uses it to help in determining the financial position of the company. It helps in informing the management where the funds are coming from and how they are being used in the business. Also, it helps in financial analysis and control when it comes to comparative studies.
Planning Is The Backbone For The Success Of Any Organisation. You Need To Compare & Contrast Three Different Planning Tools Which Prime Furniture Applies To Ensure Financial Stability And Performance As Well As Ways In Which Management Accounting Has Played A Key Role In Preventing And Solving Financial Problems
Having planning tools can help the company in mapping out areas where it needs to improve in the coming years as well as come up with a plan on how to get there. It is one of the most important things the company should do when planning for the future. The most important tool that needs to be used is SWOT, PESTEL, and VRIO. Both SWOT and PEST analysis are similar in that they are simple to use and easy to list even though when it comes to the implementation SWOT analysis might not be easy in providing the needed result for each factor.
It requires expertise that can analyse all the possible weaknesses and threats and turn them into strengths and opportunities (Drury, 2018). Further, SWOT analysis requires capital and resources to perform and have a positive outcome but this is not guaranteed. On the other hand, PEST analysis is always used if SWOT analysis tool fails and when the company needs to study markets. It looks into the external environment rather than the firms’ internal factors which can result in conflict. PEST analysis works well in planning for macro scale as it includes economic factors (Cooper et al., 2017). The factors are in most cases uncertain and constantly change depending on the state of the country of operation.
It can be concluded that both SWOT and PEST analysis tools are resourceful and beneficial as the company can use them to know their weak positions for improvement. To get better results, it is important to use both tools and have a complete analysis. Due to the merits and demerits of both tools, it is important to use both of them at the same time whereby the company employs PESTEL from which the result is used to generate opportunities and threats for SWOT. Bromwich and Scapens (2016) recommended that for planning purpose, the company should SWOT analysis tool as it looks into both internal and external factors of the company as opposed to PESTEL framework that only look into the external environment of the company.
Explain the advantages and disadvantages of different types of planning tools for Prime Furniture
SWOT ANALYSIS
Advantages
SWOT-analysis helps with strategic planning in the following ways
• It is a source of gathering information that can help with strategic planning
• It helps in building the strength of the organisation
• It maximises its response to opportunities available for the company to tap on
• Can be used to help in overcoming the threats of the organisation
• Helps in identifying core competencies of the firm
• Help in setting up the objectives of the company for strategic planning
• It helps in knowing the past, present, and future of the organisation
Disadvantage
• Increases of prices
• Legislations by the government
• Economic environment
• Poor industrial relation
• Lack of skilled and efficient labor insufficient research and development
There Are Uncertainties And Risks While Running Businesses, How Does Prime Furniture Use Management Accounting Systems To Respond To These Risks And Uncertainties And Other Financial Issues. Compare It With Some Relevant Organisation
The COSO risk management tool is one of the frameworks that consider financial responsibilities and operational functions and both are used by organisations such as Coca-Cola to help manage risks and uncertainties. A strong ERM framework should have strong communication and coordination between various departments to reduce risks and uncertainties as well as create value (Cooper et al., 2017). There are ways by which management accounting can respond to risks and uncertainties. It is important to remember that risks can be difficult to spot hence the management should have strategies for managing the risks that can emerge more so in financial accounting. Bromwich and Scapens (2016) assert that having risks analysis in place is important as it can help in identifying and understanding the risks that Prime Furniture may face. Conducting risk analysis can help in managing risks and minimising the impact that it may have on the organisational planning. These includes:
• Identification of the social and environmental trends that will likely have a great impact on the organisation ability to build value over time
• Getting to like the sustainable company challenges to the set-out strategies, business model, performance outlook, and license to function
• Establishing KPIs which supports sustainable and strategic goals
• Applying tools and techniques for management accounting such as availability of natural resources scenario planning, lifestyle costing, and carbon foot-printing to assist on sustainability issues into the decision making
• Generating reports composed of information on sustainability effects that inform the pricing and budgeting decisions, strategic planning, and investment appraisals.
• Establishing a reporting strategy incorporates sustainability issues and ensures that important non-financial and financial information is revealed.
Analyses & Evaluate How Management Accounting Planning Tools Would Help Prime Furniture To Maintain A Sustainable Success
Management tools are important in ensuring the sustainability success of the company. For instance, management accounting models of business performance evaluation that balance the financial performance, innovations, learning, and internal operations are critical for Prime Furniture. This is because the tools are composed of four attributes, which include internal operations, financial, customers, and learning as well as the growth of the company. According to Cooper et al. (2017), these four aspects play an important role in increasing the performance of the company as well as its sustainability. Further, benchmarking as a tool has also been found to be an important aspect that ensures the sustainability of an organisation. Prime Furniture can use the tools of planning to improve its operations.
Currently, there is an increase towards the use of management accounting planning tools as it helps in attaining the best standards or practice hence allowing the company to attain the desired standards by examining both the internal and external information. Bromwich and Scapens (2016) opine that SWOT analysis may help in providing excellent performance against which to measure and compare areas that organisation should be improved on to achieve the desired performance.
According to Hopper and Bui (2016), this allows the company to have sustainability in terms of its operations. Management accounting tools also ensure sustainability in that it allows for accurately looking into costing as well as managers having the opportunity to do the scrutiny of all the activities that should be conducted by the organisation within the value chain thereby leading to better management and decisions. Sustainability is ensured due to the accurate costing of products for the organsation.
Using Specific Case Studies As Example Compare Ways In Which Management Accounting Is Applied, The Effectiveness Of Management Accounting In Dealing With Financial Problems And Preventing Financial Problems In Organisations.
Management accounting is used for short and long-term decision making which involves looking into the financial health of the organisation. For instance, in Coca-Cola, management accounting is currently used in making operational decisions, which aims at increasing the operational efficiency of the company while at the same time helping it to make long-term decisions.
Further, the company is using management accounting to forecast, monitor, and track its performance, which is also an important aspect of managerial accounting. Hopper and Bui (2016) opine that it ensures that the actual results meet the budgets and forecast outlined at the onset. Based on this case study, Prime Furniture can also make use of management accounting to compare their accounts with the original budgets of the forecast, manage their resources better as well as in identifying the trends of their business.
Management accounting is important in dealing with financial problems in that it helps in identifying variable costs, fixed costs, fixed costs, and job order costing that can be used in setting service prices. In addition, Quattrone (2016) pine that it is also effective in managerial accounting as it helps in ascertaining costs of a specific department or product. Management accounting has helped in proving that it is an effective tool that can be employed to help in collecting and storing data for the company. Currently, managers are using it to help in making decisions by looking into the long term of the organisation. This is done by looking into plans and preparation of the information that optimises managerial and top management in decision making.
The tool is important as it helps in preventing financial problems of the organisation. This is by solving problems by emphasising the past and historical reports. In addition, Hopper and Bui (2016) indicated that the tool allows for the integration of various aspects of an organisation’s work that help in facilitating the proper achievement of the objectives. It is important to have proper coordination between the various aspects of the company including personnel, production, sales, and finance among others. This can be achieved by supplying proper documentation to the accountants of the organisation.
Using the Absorption and Variable Costing techniques, prepare and present two separate Statements of Profit or Loss (Income statements) based on the data given below for each of the two quarters. You should clearly show how the costs were calculated under each of the costing techniques. You also need to reconcile both the figures and interpret data. Explain with supportive calculations, why the profits under each technique are different.
References
Bromwich, M., & Scapens, R. W. (2016). Management accounting research: 25 years on. Management Accounting Research, 31, pp.1-9.
Cooper, D. J., Ezzamel, M., & Qu, S. Q. (2017). Popularizing a management accounting idea: The case of the balanced scorecard. Contemporary Accounting Research, 34(2), pp.991-1025.
Drury, C. (2018). Cost and management accounting. Cengage Learning.
Hopper, T., & Bui, B. (2016). Has management accounting research been critical?. Management Accounting Research, 31, pp.10-30.
Quattrone, P. (2016). Management accounting goes digital: Will the move make it wiser?. Management Accounting Research, 31, pp.118-122.
