EXECUTIVE SUMMARY:

The role of the management accounting is very essential in today’s organizational

environment. There are some important techniques which are very useful for the

company’s success. This report is to the Board of Directors of the TESCO Plc. As a

management accountant consultant I have analyzed how management accounting

helpful to take business decision and can improve business profitability.

INTRODUCTION:

Tesco plc is a worldwide grocery and general merchandising retailer. The company is

having it’s headquarter in Cheshunt, United Kingdom. The company is the fourth-largest

retailer in the world measured by revenues after Wal-Mart, Carrefour and Metro. And

also the second-largest measured by profits after Wal-Mart. The company is having

retail stores in 14 countries including Asia, Europe and North America and the company

is the grocery market leader in the UK, Malaysia, and Thailand. In UK the company

owns market share of around 30%.

Basically the chain was founded by Jack Cohen in 1919. The company has started its

brand after Cohen bought a shipment of tea from T.E. Stockwell. The name TESCO

came from using the initials (T.E.S) and adding the first two letters of his own surname

(CO). The company opened its first Tesco store in 1929 in Burnt Oak, Edgware,

Middlesex. Basically the company’s focus was at UK and specializing in food and drink.

It has diversified both geographically and by product, into areas such as clothing,

electronics, financial services, telecoms, home, health, car and dental insurance,

retailing and renting DVDs, CDs, music downloads, Internet services and software. The

company is listed on the London Stock Exchange and is a member of the FTSE 100

Index. The company has started its operations in India.

The company is having three types of stores which are as follows;

Tesco Extra:

In this category of stores, they are larger, mainly out-of-town hypermarkets which

contains stock nearly all of Tesco's product ranges.

Tesco Superstores:

In this category of stores, the superstores are standard large supermarkets, contains

stock of groceries and a much lower range of non-food goods than Extra stores.

Tesco Metro:

These types of stores are sized between Tesco superstores and Tesco Express stores.

They are mostly located in city centers, the inner city or on the high streets of towns.

According to TNS Worldpanel, Tesco's share of the UK grocery market in the 12 weeks

to 27 December 2009 was 30.5% which is increase of 0.1% on 12 weeks to 27

December 2008 largely in line with the increase of the other four largest supermarkets.

These increases resulted in to the decline in the market share of discount chains Lidl,

Aldi and Netto in the same period, collectively of 0.1%.

(Source: Kantar Worldpanel)

The company’s major competitors are ASDA, Sainsbury’s, Morrisons, LIDL, ALDI etc.

But in the UK the company holds a major market share. This shows good sign for the

company’s progress.

What is management accounting?

Management accounting is a combination of accounting, finance and management with

the leading edge techniques which will help to drive successful businesses. There are

Chartered Management Accountants who help business organizations to take major

business decisions.

The role of Chartered management accountants:

Advise to the managers about the financial implications of projects

Explanation of the financial consequences of business decisions

Formulation of business strategy

Control on the spending and finance

Conduct internal business audits

Explanation of the impact of the competitive landscape

The above are the role of the management accountants. These roles are part of the

definition of the management accounting. It means all of the functions also part of the

management accounting.

Techniques of Management Accounting:

There are some techniques of management accounting which have been used to take

business decisions. These techniques are as follows;

Activity-Based Costing (ABC)

Just-in-Time (JIT) and

Total Quality Management (TQM)

Now I have discussed how these techniques can be used by the TESCO Plc so that it

helps company to take proper decision.

Applicability of Management Accounting:

After careful evaluation of the TESCO’s business activities and services I would like to

suggest some key techniques of the management accounting which will help company

to improve its current business strategies. The suggestions are as follows;

Activity Based Costing (ABC):

ABC is a costing model which identifies activities in an organization and allots the cost

of each activity source to all products and services according to the real utilization by

each: it assigns more indirect costs into direct costs.

By using this method the organization can accurately estimate the cost of every

products and services so the company can identify and remove those that are

unbeneficial and reduce the prices of those that are expensive.

The Activity Based Costing model allocates an organization's resource costs through

activities to the products and services which is provided to its customers. The basic

purpose of the methodology is to understand product and customer cost and

profitability. The ABC has mainly been used to carry strategic decisions such as pricing,

outsourcing, identification and measurement of process development initiatives.

(Source: http://www.google.co.in/imgres?imgurl=http://www.aceondemand.com)

As the TESCO is engaged in various grocery products’ business the ABC model is very

useful to the company. This technique will allows company to understand the costing of

their products. The company is selling thousands of products so ABC will helpful to

understand the costing of each product. If the company is charging more for any

specific product or less for any other product in this situation the ABC method will help

company to take decision regarding the costing of the products. This is very important

technique for the company. This will help company to increase its profitability.

Just-in-Time (JIT):

Just-in-time (JIT) is an inventory approach that attempts to develop a business's return

on investment by reducing in-process inventory and associated carrying costs. Just in

Time production method is also known as Toyota Production System. JIT focuses on

continuous development and can improve a manufacturing organization's return on

investment, quality, and efficiency. This will help to achieve continuous development

main areas of center could be flow, employee participation and class.

The stock reduction requires employees to order new stock, which is critical at the

center of JIT. This saves warehouse space and costs. However, the complete system

for making this work is often misunderstood. The idea of JIT is simple: inventory is

waste. JIT inventory systems expose hidden causes of inventory maintenance, and are

therefore not a simple answer for a company to adopt. The company must follow a

collection of new techniques to manage the outcomes of the change. The JIT inventory

value defines how stock is viewed and how it relates to management.

Now if we consider TESCO, it is very useful technique for the company. In this type of

the organization the inventory maintenance is very important. In order to do effective

inventory control there is need of JIT method. This is also an important tool for the

company. It will help company to improve its profitability.

Total Quality Management (TQM)

TQM is an integrative belief of management for constantly improving the quality of

products and processes. TQM functions on the principle that the quality of the products

is the liability of everyone who is involved with the formation or utilization of the products

or services offered by the organization. In other words, TQM exploit on the involvement

of management, workforce, suppliers, and even customers, in order to meet or exceed

customer expectations. The Six Sigma procedure improvement originated in 1986 from

Motorola’s oblige towards reducing defects by minimizing variation in processes through

metrics measurement.

As we all know that quality of the product is key tool for the company. In order to satisfy

customers it is necessary for the company to provide standard quality’s products. The

TESCO is very well known famous brand in the UK so customers’ expectation is also

high from the company. So it is the duty of the company to maintain its products’ quality.

In order to do so the company should ask standard quality’s products from their

suppliers and dealers.

Strengths of Management Accounting:

The management accounting helps company to calculate plans and budgets

covering all aspects of the business. Example: production, selling, distribution,

research and finance. So it is very important branch of the finance. It is very

useful for the company’s success.

It will help managers to take business decisions. It does not cover only the

financial matters of the organization but it covers whole business functions of the

organization.

Weaknesses of the Management Accounting:

The Financial accounting is very uniform, with financial accountants using

strategy such as Generally Accepted Accounting Principles (GAAP). In severe

difference to this, management accounting does not have a set of standard rules.

The Management accounting permits for a great deal of prejudice when creating

metrics and methods for measuring performance. This is difficult because the

accountant's personal beliefs and biases can have an effect on the way

performance is measured.