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The relevance of management accounting in Tesa UK and its function in improving company operations are discussed in this study. In company, management accounting is critical. Because it encompasses management accounting systems, reporting methodologies, and planning tools, it is regarded as a fairly wide notion. Several of these heads are discussed in this paper. It also represents how budgets aid in planning, administration, and accounting, as well as the many types of budgets and their significance in a company. This study will also illustrate how management systems, reporting, and planning strategies aid in the resolution of financial issues.
Management accounting can be defined as the system of recording the transactions, analysing the transactions and then reporting to its final users. The transaction includes all the day-to-day transactions as well as the major transactions which plays an important role in decision making. Analysis is done with the help of systems of MA such as standard costing, CVP analysis etc. Reporting is very important part of management accounting; reporting is done to the management so that the management can make important decisions which are favourable for the company. He reporting is done with the help of budget reports, cost reports, inventory reports, etc (Amara and Benelifa 2017).
Tesa UK is the firm profiled in this research. Tesa UK, which has been based in Milton Keynes since 1985, is a completely owned subsidiary of Tesa SE. Automotive, flexographic, printing, building supplies, corrugated packaging, newsprint and paper manufacture, and painting and decorating are among Tesa UK's top markets. Management accounting aids in the analysis of financial data and the making of key and required decisions in this firm so that it may expand more effectively.
Management accounting is a mixture of executive frameworks and the accounting of the organization. The principal job of this branch of accounting is to coordinate every one of the capacities and cycles of the business with the frameworks of the management accounting with a goal to make the destinations and objectives of the association attainable. This branch of accounting helps the organization to establish control on the resources of company, developing plans for the future, evaluating different alternatives for business, making relevant business decisions which are favourable for the company, managing the inventories, eliminating the abnormal expenses etc.
Roots of management accounting are very strong and this is because the management accounting is not a conventional technique, it was begun before the 19th century, it was first used in 1880, from year 1880 to 1925, the technique was majorly focused on the costing of products and analyses of the benefits which are derived from the products. After that period, the technique started to spread its scope and other techniques are also developed, the evolution of the management accounting through the years is being shown by the help of the diagram given below.
Difference between Management Accounting and Financial Accounting
These are the well-defined accounting systems that assist management in calculating different company operations in order to provide a foundation for making good judgments. There are set procedures for implementing this system, which are relevant to all types of businesses, large and small. Tesa UK uses this system to calculate costs, whether for a product or a work, or to manage inventories, among other things.
Meaning:
Ascertainment of cost is very significant function of a production process and this cost is ascertained by the help of cost accounting system. This system enables the organization to calculate and consider all the cost which is material, labour and overheads (Huang et al. 2019).
Essentials:
Meaning:
Inventory is a broad term and it includes WIP which is partial finished goods, finished goods which is ready to be sold in market and raw material which is about to be used in the production process. In inventory management system, all the three components of the inventory are valued, stored and manage. This system makes sure that the procurement and issuance of the inventory is as per the requirements of the company (Mukhopadhyay, Bose and Roy 2020).
Essentials:
Meaning:
Pricing strategy is very crucial for the company. A good pricing strategy can increase the sales of the company to the highest and a bad one can shut down the company. Pricing decisions are taken by considering three main factors which are demand and supply forces, cost of the product and price of the competitor. Price optimization system is used by the management and in this all the three factors are considered as per their relevancy and the price of the product is determined. The price determined is optimum and it is calculated by taken in to consideration all the three factors.
Essentials:
It is a MA approach that comprises reporting strategies that assist management in evaluating the performance of company operations by comparing them to criteria established during the planning process. Tesa UK, use the reporting mechanism of the MA in a manner that the communication between the department and communication between the department and the top management is free from barriers and errors. The main objective of MA reports is to provide a hassle-free management information system for the company.
Budgeting is all about forecasting the future revenues that will be generated and planning the future costs and expenses accordingly. This reporting approach aids Tesa UK in reviewing the company's financial facts and data in accordance with industry standards (Barr and McClellan 2018).
Performance reports are used for managing and comparing the performance of departments and employees, the performance of the departments and its employees are integrated with the goals and objectives of the company and comparison of the performance is done so that variances may be identified and corrective action taken. Performance does not just refer to a company's net value; it also refers to how well it performs in all aspects of its operations. Tesa UK uses a performance report to estimate performance based on financial data (Bartz Thompson and Rice 2017).
Cost is the major element of price of the product and therefore the calculation of cost is very important. Calculation of cost is very crucial as there are many processes, service departments in the company the of which shall be allocated to the product. Therefore, the cost reports help the management in providing the information about the costs incurred at each stage of production and after that. Because Tesa UK has so many goods, it's critical to have cost estimates for each one. The standards should also be compared to the real so that the firm can determine whether cost management is vital or not.
For greater performance, there should be a balance of items in any business. As a result, management accounting systems and reporting approaches should be balanced as well. If they are utilized independently, they are useless. As a result, management accounting systems assist in calculating and determining various corporate financial activities such as the cost of each job, the cost per unit produced, inventory management, and the best pricing. Reporting approaches, on the other hand, aid in analyzing the extent to which they have progressed, such as how far they have deviated from the standard work cost, stand price, and standard production cost. The firm will be unable to make effective and remedial choices if the variance is not calculated (Topazio et al. 2020).
It is a way of determining profit and loss based on the number of units sold. As a result, all costs, both fixed and variable, are calculated based on the number of units sold. The distinction between these two strategies is that this one focuses on the fixed cost, which varies depending on the number of units sold (Hojna and Stryckova 2018).
Budgeted Profit as Per absorption costing |
£s |
£s |
£s |
£s |
Month 1 |
Month 2 |
|||
Turnover |
40 |
288000 |
40 |
292000 |
Les Full cost of sales |
25 |
180000 |
25 |
182500 |
Opening stock |
25 |
5000 |
25 |
12500 |
+ Production |
113000 |
122000 |
||
Less Closing Stock |
25 |
12500 |
25 |
5000 |
Adjustment |
100500 |
117000 |
||
Over absorption/(under-absorption) |
-4000 |
-3500 |
||
Gross profit |
96500 |
113500 |
||
Less Non-production cost |
||||
Variable cost |
||||
Fixed cost |
20000 |
20000 |
||
Budgeted Profit |
76500 |
93500 |
Marginal Costing
Marginal costing is a method of determining cost and net profit for the year in order to assess performance. It's a per-unit variable cost idea. The separation of variable and fixed expenditures in this approach is based on the unit generated. The profit is derived by subtracting the fixed costs from the contribution, as well as all other indirect costs (Labro 2019).
Budgeted Profit as Per Marginal costing |
£s |
£s |
£s |
£s |
January |
February |
|||
Turnover |
40 |
288000 |
40 |
292000 |
Less variable cost of sales |
20 |
144000 |
20 |
146000 |
Opening stock |
20 |
4000 |
20 |
10000 |
+ Production |
148000 |
156000 |
||
Less Closing Stock |
20 |
10000 |
20 |
4000 |
Contribution |
138000 |
152000 |
||
Less Fixed cost |
||||
Production |
40000 |
40000 |
||
Non-Production |
20000 |
20000 |
||
Budgeted Profit |
78000 |
92000 |
Reconciliation
£s |
£s |
|
Profit as per marginal costing |
78000 |
92000 |
Adjustment of differences of valuation of stock |
||
Opening Stock |
1000 |
2500 |
Closing stock |
2500 |
1000 |
Profit as per Absorption costing |
76500 |
93500 |
Sales Budget
The budget prepared for sales contains all the relevant information about the sales of company. It includes information regarding estimations of future sales of unit and price per unit, which gives the estimated total revenue of the company.
Advantages:
Limitations:
Production Budget
This budget is prepared for ascertaining the quantity of materials which will be produced by the company. This is prepared by the company on regular basis as per the requirements of the company, it can be prepared for monthly, quarterly and annually by the company.
Advantages:
Limitations:
Zero based budgeting
The budget in which the budget s prepared from scratch is termed as zero-based budgeting. In this the data from previous periods is not used, every line item of the budget is prepared by taking the actual expenses or cost as a base.
Advantages:
Limitations:
Kaizen budgeting
A philosophy according to which, a budget is improved continuously with the passing of time is known as kaizen budgeting. It does not keep focus on the predetermined expectations and estimations, it enables the organization to make amendments in the budget of an ongoing activity.
Advantages
Limitations
Whether a company is huge or small, financial challenges are prevalent. Financial concerns have a detrimental influence on the performance of the entity. Managers of entities can design plans for resolving financial challenges using planning tools and MAS.
Some of the Financial issues face by Tesa UK
Tesa UK works in the manufacturing industry. The manufacturing process needs a sufficient level of working capital. Both companies' debtor collection periods are long, indicating ineffective working capital management. As a result, there is less cash inflow, and both firms' liquidity is decreasing (Loutzenhiser and Mann 2021).
Companies must purchase capital equipment, which requires a large sum of money. If the investment fails to pay off, the corporation will suffer a significant loss and its obligations will grow significantly.
Use of MA to respond to financial issues faced by the company
Benchmarking compares a company's procedures and performance to that of other firms. The quality, time, and cost of a firm are measured and compared to the factors of another company. It allows a corporation to specify its internal goals for a specific time period (Paisley et al. 2021).
Tesa works in the manufacturing industry. As a result, benchmarking may be used successfully by the firm to compare performance, methods, and outcomes. Tesa UK may define internal goals and objectives, assess company decisions, analyze procedures, find methods that might be more lucrative, and adopt them in their firms. This strategy will eventually lead to profit maximization, which is one of every business's key aims.
The quantitative metrics that are used to assess long-term success are known as key performance indicators. These indicators are extremely useful in recognizing and deciding on a company's strategic, financial, and operational outcomes. The focus of financial KPIs is on net profit, sales, and costs. A current ratio is a type of KPI that is used to measure a company's liquidity (Domínguez et al. 2019).
The KPI’s are used by the company for appraisal of the performance of the departments as well as the staff and managers of the department. The analyses shall be a comparison of the set KPI’s with the actual results and the future decisions shall be made accordingly.
This is a company performance statistic that is used to develop business strategy. The internal functions of the firm are compared to their outward consequences in this method. This method allows a business to collect and analyze feedback on its present strategy and functions. On the one hand, Hawthorn International uses the balance scorecard approach to improve internal processes and increase profitability; on the other hand, Tesa uses it to explore alternative plans (Njehu 2017).
This is a way of allocating overheads (also known as indirect expenditures) to products and services. Indirect expenditures are those that are not directly related to the manufacturing process. Tesa UK use the ABC approach to appropriately disperse overheads on products. This will lead to the discovery of unusually high indirect expenditures that may be avoided. This unnecessary expense must be avoided, and suitable action plans must be established to eliminate these expenses and reduce costs.
Conclusion
The use of MA approaches to the management of an entity's activities is critical. Manufacturing businesses must establish a solid management accounting system in order for their operations to run effectively. The cost of things created is calculated in numerous ways using marginal costing and absorption costing approaches. The fixed overheads are absorbed on the actual output in absorption costing, and hence the profit differs in both systems. Tesa is dealing with a variety of financial issues. This study discusses management accounting methods and approaches that may be used to efficiently solve financial difficulties in a business.
References
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