Management Accounting Techniques and Tools

This report delves into the world of management accounting, exploring various techniques and tools used to forecast future costs, value stocks, and compare actual performance with budgeted plans. It examines different management accounting research paradigms, realising the richness of psychology theory in contingency-based management accounting research. The document also touches on business strategies and management accounting in response to climate change risk exposure and regulatory uncertainty.

Management Accounting Systems
& Techniques

Table of Contents
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
P 1. MA and systems of MA........................................................................................................1
P 2. Contrasting methods of MA reporting.................................................................................2
LO 2.................................................................................................................................................3
P 3 Showing preparation of financial reports of the company by using appropriate techniques
of management accounting system..............................................................................................3
LO 3.................................................................................................................................................7
P 4. Benefits and limitations of budgetary tools..........................................................................7
LO 4.................................................................................................................................................9
P 5 comparing various management accounting systems adopted by different organisations in
order to respond to different financial problems..........................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Management accounting is an effective technique of using various financial and
accounting data in order to get better results which helps internal management of the company in
taking strategic decision. This helps in effective analysis of the financial data in order to predict
the future and it also aids in controlling the functions for better results and outcomes.
This report will examine the importance of management accounting and its different
types of management accounting system. This study will highlight different techniques of
management accounting reporting. This study will also use various cost accounting techniques
such as marginal and absorption costing. It will further evaluate use of various planning tools
which are used for budgetary control. It will further examine various financial difficulty and take
necessary measures to resolve such issue in a timely and systematic manner.
Hargreaves Lansdown plc. is a type of public limited company which was founded in the
year 1981. This is a financial service company, which is headquartered in Bristol, UK.
Hargreaves Lansdown plc. provides various services such as ISA, SIPP, Annuities, currency
services, fund dealing, retirement services, share dealing, investing, drawdown, financial advice,
foreign currency exchange, etc.
LO 1
P 1. MA and systems of MA.
Management accounting (MA) is a crucial process which helps in analysing various
business activities in order to take strategic decision in an accurate and timely manner. MA is a
process which helps internal staff of the organization to take strategic decision. This process
helps in analysing the operations and cost of the Hargreaves Lansdown plc.
MA System
MA system is a systematic process which helps in decision making and formulate an
action plan in order to analyse the action and operation of the business. MA system helps in
controlling cost which leads to higher profitability (Granlund. and Lukka, 2017). MA system
main purpose is to forecast the future and value stock for proper functioning of the Hargreaves
Lansdown plc. This Managerial accounting system aids in financial planning, variance analysis,
capital budgeting analysis and break even analysis which helps in viable decision making for the
future growth of Hargreaves Lansdown plc.
Cost accounting system: This system is known as costing or product costing system. It is
a framework which evaluates the cost of the goods produced or services rendered by the
company. This system helps management in analysing the profit for the business, valuation of
stock and cost control. (Malmi, 2016) established the fact that, accurate estimation of cost for
each good produced is critical for the profitable operations of the Hargreaves Lansdown plc.
Inventory management system: This system is a software system which helps in tracking
the inventories, material tracking, inventory levels and finished products, orders, automated
recording, sales and delivery (Granlund. and Lukka, 2017). This system helps in management in
estimating the required material top produce the desired level of goods. This helps in proper
utilization of resources and also avoid overstocking and under stocking which leads to higher
operational performance and productivity.
Price optimization system: This a systematic framework which analyses and determine
the change in the behaviour of customers with the change in the prices of various products and
services offered by the Hargreaves Lansdown plc. This MA system will find the best price which
will generate higher profits. (Malmi, 2016) sought to determine the fact that, price optimization
system helps in evaluating respond of different customer segment with the change in price. This
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helps organization in determining the price which best meets the organizational goal and attain
higher profits.
Job costing system: This MA system is a process of assigning manufacturing cost to the
each individual unit of the output or production. This method is used when the each product
produced is different from the other and has a particular amount of cost attached to them. This
method helps in determining the actual cost by evaluating the material, overhead and labour cost.
P 2. Contrasting methods of MA reporting.
Management accounting produces various management accounting reports which helps
in internal stakeholders of the company to take necessary decision and evaluate the financial
position of the company for the particular period. MA reports helps in formulating plan, take
strategic decision, regulating and measuring performance which results in better operational
productivity.
Budget report: It is MA report which compares the actual performance of the company
with the estimated projected plan (Hall, 2016). Budget report helps in determining the variation
and the internal stakeholders will evaluate the cause of the deviation and will take necessary
measures on a timely manner for higher results. On the contrary, (Hall, 2016) argued and
established the fact that, budget report is based on estimation and future prediction which result
in deviation and give inaccurate results when compared with the budgeted plan. In the other
hand, (Tappura and et.al., 2015) said that, budget report is based on past predictions which helps
in determining the future which leads to higher sustainable growth. This report also helps in
prioritizing the spending and control cost for higher operational efficiency.
Accounts receivable report: This is an effective report which analyses the list of various
unpaid customers, to whom goods were given on credit. This report helps in determining the
invoices which are due for payment. It also helps in determining the duration or time period
within which the cash can be recollected from the unpaid customers. Only credit transactions are
entered into the report. The customers owe money to the company with the surety to repay on the
future date. This helps company in determining the financial position of the Hargreaves
Lansdown plc. If the company is collecting cash at a lower rate then it's the warning sign for the
company that it has greater credit risk which leads to lower profitability and operational
efficiency of the business.
Performance report: This is a detailed statement which measures the performance of the
particular activity in relation with the success and generation of profit from the particular
activity. This helps internal stakeholders of the company to analyse the current status of the
project and forecast the progress in order to determine which activity is more beneficial in order
to generate higher profits and achieve desired goal (Tappura and et.al., 2015). This report takes
into consideration utilization of resources, communication in the project progress, effective
management plan, productivity of the employees and monitoring the same in order to prioritize
the particular activity which is highly beneficial for the development and growth of the
Hargreaves Lansdown plc.
Cost report: This is a detailed statement which assist business in determining the cost
attached with the particular unit or the level of production. This report helps in ascertain the
expenses (Turner and et.al., 2017). This helps in controlling cost ad reducing wastage of cash by
allocating cost in a systematic and efficient manner. Cost report determines the cost of project,
goods produced, processes in order to ensure that the financial results are accurate and viable.
The cost report helps in determining the manufacturing cost of producing a particular product.
This is crucial for selling and production plan which helps in strategic decision making. This
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gives detailed analysis of the labour capacity, machine capacity and output levels for accurate
results and outcomes (Maas, Schaltegger and Crutzen, 2016). This report helps in cost object
analysis which helps in evaluating the various problems and ascertain the exact cause of the
problem. This report also helps in analysing the trend and inventory valuation for future growth
and success.
Benefits of systems of MA
Cost accounting system: It helps management of Hargreaves Lansdown plc. in future
planning. It helps in giving detailed analysis and evaluation of most profitable and non-
profitable activities. This helps in reducing cost and achieving economies of scale and higher
profitability.
Inventory management system: This system is very useful for Hargreaves Lansdown plc.
in saving time and money by critically determining and tracking the amount of resources, level
of inventory (Noreen, Brewer and Garrison, 2011). This helps in controlling inventory levels and
avoid over and under stocking for higher operational performance and productivity.
Price optimization system: This system helps in determining the change in the demand
and supply of goods and services with variation to different prices (Turner and et.al., 2017). This
helps in estimating the best price which helps in attracting higher customers and results in higher
profitability.
Job costing system: This MA system helps in evaluating the determining the profitability
of each job individually (Bui and De Villiers, 2017). This system helps in detailed analysis of the
various cost attached with the job and also helps to evaluate the specific jobs to determine the
most profitable job for future growth and success. It helps in evaluating the performance of each
job and it also gives accurate results.
Critical evaluation of MA systems of MA reporting
(Turner and et.al., 2017) said that, MA system is an effective process which helps in
determining the financial position and viability of the company which leads to future growth and
development. This helps in increased operational efficiency and lower cost reduction which in
turn results in higher profitability. This system also helps in minimizing the wastage of resources
and disruptions in order to reach higher operational performance. Integration of management
accounting system in Hargreaves Lansdown plc. helps in avoiding duplication of work and
avoids conflict which leads to smooth functioning of the business.(Bui and De Villiers, 2017)
said that, management accounting system may sometimes give inaccurate decision because it
may lead to personal bisness and is based on estimations and future predictions.
(Noreen, Brewer and Garrison, 2011) sought to establish the fact that, integrated
management accounting reporting helps in presenting clear detailed statement of the various
financial transaction. This reduce duplicate work and helps in better decision making for the
internal stakeholders. On the contrary, ((Maas, Schaltegger and Crutzen, 2016)) argued that,
management accounting reporting is a time consuming and a complex process. It does nor
always gives accurate results because it takes into consideration historical data and it neglects
qualitative information.
LO 2
P 3 Showing preparation of financial reports of the company by using appropriate techniques of
management accounting system
Marginal costing:
3

Marginal; costing is a technique used in management accounting system for the purpose
of preparing income statements of the company. This technique used each variable prodiction
costs incurred by the business as a production cost. On the other hand, alll fixed costs are being
considered as a period cost in the technique. In this regard, all the variable costs incured bythe
firm are being considered at the time of preparing determining cost of production for the
company.
Absorption costing:
As the name describes, absorption costing technique of management accounting system
considers each costs absorbed by the business during a specific time period (Noreen, Brewer and
Garrison, 2011). In this technique, each cost including variable and fixed costs at the time of
production, are being taken into consideration at the time of calculating cost of production.
Difference between marginal costing and absorption costing techniques
The major difference between these two techniques arises at the time of calculating cost
of production for the company. Cost of production derived from marginal costing comes lower
than the absorption costing as it does not consider fixed costs incurred by the company.
Per unit production cost of Galway Plc using marginal costing technique
Heads amount
Direct material 8
Direct labour 5
Variable production overheads 3
total production cost per unit 16
Income statement of Galway Plc under Marginal costing technique for May
Heads amount amount
sales revenue 15000
less: Cost of production
opening stock 0
Add: Cost of production 8000
less: closing inventories 3200
total cost of production 4800
contribution 10200
less: Fixed costs
production overheads 4000
selling costs 4000
administration overheads 2000
sales commission 750 10750
profit -550
Income statement of Galway Plc under Marginal costing technique for June
Heads amount amount
sales revenue 25000
less: cost of production
opening stock 3200
Add: Cost of production 6080
less: closing Inventories 1920
total cost of production 7360
4

contribution 17640
less: Fixed costs
production overheads 4000
selling overheads 4000
administration overheads 2000
sales commission 1250 11250
profit 6390
Per unit production cost of Galway Plc using Absorption costing technique
Heads amount
Direct material 8
Direct labour 5
Variable production overheads 3
fixed production overheads 13.33
total production cost per unit 29.33
Income statement of Galway Plc under Absorption costing technique for May
Heads amount amount
sales revenue 15000
less: cost of goods sold
opening stock 0
Add: variable production cost 14667
less: closing inventories 5867 8800
gross profit 6200
under absorbed overheads 587
less: other overheads
selling overheads 4000
administration overheads 2000
sales commission 750 6750
net profit 37
Income statement of Galway Plc under Absorption costing technique for June
Heads amount amount
sales revenue 14667
less: cost of goods sold
opening stock 5867
Add: production overheads 6080
less: closing inventories 3520 8427
gross profit 6240
under absorbed production cost 587
less: other costs
selling overheads 4000
administration overheads 2000
sales commission 733 6733
net profit 93
5

variance analysis
It is a technique that is used by the company for the purpose of detecting inefficiencies
from the business. It can be detected by comparing the actual cost by the budgeted cost. This
technique provides either favourable or adverse results. favourable result shows improvement in
efficiency of the firm, on the other hand, adverse result shows inefficiencies in the business.
Statement showing variance analysis of material of the company
Material usage variance
Particular Amount Amount Variance
Standard hours–
actual hours)
*Standard price (1000-2200)*10 -2000 Adverse
material price variance
Particular Amount Amount Variance
Standard price -
actual prices ) *
Actual hours (10-9.5)*2200 1100 favourable
Inventory valuation
Inventory valuation is a tool that helps financial managers in maintaining records of each
movement in the stock of the company. LIFO, FIFO, weighted average, etc. are various methods
that can be used by the business for the inventory valuation. Each method provides different
results to the business, therefore, the financial manager should analyse each method carefully
and should adopt the most appropriate method as per the need and requirements of the company.
Statement showing movement of inventories using LIFO methods
Date
Head
s opening purchased sales balance
units
per
unit
cost
amou
nt unit
per
unit
cost
amou
nt unit
per
unit
cost
amou
nt unit
per
unit
cost
amou
nt
01
may
openi
ng
stock 40 3 120 40 3 120
12
may
purch
ases 20 3.6 72 40 3 120
6

20 3.6 72
15
may issues 20 3.6 72 24 3 72
16 3 48
20
may
purch
ase 20 3.75 75 24 3 72
20 3.75 75
23
may sales 10 3.75 37.5 24 3 72
10 3.75 37.5
27
may sales 10 3.75 37.5 9 3 27
15 3 45
30
may sales 5 3 15 4 3 12
Statement showing movement of inventories using Weighted average method methods
Date
Parti
cular Opening Purchased Sales Balance
Unit
Per
unit
Amo
unt Unit
Per
unit
Amo
unt Unit
Per
unit
Amo
unt Unit
Per
unit
Amo
unt
01
may
Openi
ng
stock 40 3 120 40 3 120
12
may
Purch
ase 20 3.6 72 60 3.2 192
15
may Issue 36 3.2 115.2 24 3.2 76.8
20/05/
19
Purch
ase 20 3.75 75 44 3.45 151.8
23
may Sales 10 3.45 34.5 34 3.45 117.3
27
may Sales 25 3.45 86.25 9 3.45 31.05
30
may Sales 5 3.45 17.25 4 3.45 13.8
LO 3
P 4. Benefits and limitations of budgetary tools.
Budgetary control tool is a strategic process which helps in comparing the actual
performance with the budgeted plan. The various planning tools mainly includes:
Zero based budgeting (ZBB)
This is a budget tool which focuses on preparing a budget from the scratch without
considering any past expenses (Gooneratne, and Hoque, 2016). The budget is prepared from the
zero based by predicting the future needs for higher operational efficiency.
Advantages of Zero based budgeting
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The ZBB helps in lowering the cost and focuses on predicting the future in order to
predict the cost of the company for future to get accurate results. This tool helps in controlling
the cost of the business by predicting past expenses.
Disadvantages of Zero based budgeting
The management of the organization will manipulate the data which will result in
inaccurate information and also impact the decision making and operations of the business
(Mohamed, Kerosi, and Tirimba,2016). The major drawback of ZBB is that it is for short period
and does not take into consideration long term future goals.
Activity based budgeting
This budgeting method evaluates the cost of each activity of the company (Barry and
Dent, 2017). Every activity in the administration incurs a specific cost and internal stakeholders
of the company takes necessary measures to create efficiencies and achieve economies of scale.
Advantages of Activity based budgeting
This tools helps company in evaluating the potential activity which generates higher
revenue. This helps internal management of the Hargreaves Lansdown plc. in analysing the cost
and taking necessary measures to generate higher profits (Gooneratne, and Hoque, 2016).
Disadvantages of Activity based budgeting
This planning tool is costly to maintain. The data used can be easily manipulated which
leads in ineffective decision making. Preparation and collecting data is a very time consuming
process.
Flexible budgeting
This budgetary tool adjusts with the change in the volume of production activity. The
cost of the production varies with the variation in the volume of activity (Mohamed, Kerosi, and
Tirimba,2016). The flexible budget varies because the budget takes into consideration variable
cost each unit of activity.
Advantages of Flexible budgeting
This is a beneficial tool because this budget plan restructures itself with the change in the
volume of production or activity levels (Marina and et.al., 2016). This gives more accurate
result because it takes into consideration variable cost.
Disadvantages of Flexible budgeting
The major disadvantage is that it is difficult to formulate the budget. It is a time
consuming process and it does not give viable results because it overshadows the profit of the
company.
Use of different planning for forecasting budget
Zero based budgeting is useful for short period and its application in business helps in
evaluating cost and expenses from the scratch for future period (Barry and Dent, 2017).
Activity based budgeting is useful in eliminating all unnecessary activities and
prioritizing the activity which is more profitable for the business. Application of this planning
tool helps management in controlling cost of each activity for higher operational efficiency.
Flexible budget is useful in allocating the cost attached with the change in the level of
production (Marina and et.al., 2016). The management of the organization will compare the
actual and take necessary control measures. The application of flexible budget helps in adapting
to various change such as fluctuation in income and unexpected expenses.
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LO 4
P 5 comparing various management accounting systems adopted by different organisations in
order to respond to different financial problems.
Financial problems
Financial problems can be simply defined as a range of problems that affects the financial
health of the organisation and financial position of the business in the competitive market as
well. These problems can be arise in the country due increase in the inefficiencies within various
business activities of the company.
Management accounting system:
It can be defined as a system or procedure of managers through which they perform their
managerial functions in order to monitor overall financial activities of the country. Along with it,
the system also provide several guidelines through which the managers become able to build
their strategies and plans relating to control the inefficiencies in the financial system of the
country.
Following are some major techniques that can be adopted by the financial managers in
order to improve the quality of managers in responding to various financial problems that may
arise in the organisation:
Key performance indicators
It is the technique that provides numerous guidelines and frameworks in order to
maintain record of performance relating to various departments of the company including their
own performance (Mohamed, Kerosi and Tirimba, 2016). Hargreaves Lansdown plc adopts this
technique for the management and controlling purpose. With the help of key performance
indicators the managers of company can maintain records of the actual performance of each
activity of the firm. In this regard, by comparing company's actual performance with its previous
performance, the managers can effectively analyse change in the efficiency in numerous
activities of the business organisation.
With the help of this evaluation of increase or decline in the performance, managers
become able to detect the inefficiencies within the Hargreaves Lansdown plc. Further, with the
help of key performance indicator, managers also become able to analyse and predict a range of
financial problems that may arise in the near future of the company. Therefore, it helps them in
formulation of their strategies and plans for the company in more effective way so that the
business could effectively respond to numerous business problems relating to the financial
position of the country. In this regard, it can be analysed that by adopting key performance
indicator, managers of Hargreaves Lansdown plc develop their plans and procedures with the
help of which they enable the company in responding to numerous business problems.
Variance analysis
Variance analysis is refers to a comparison between budgeted performance and actual
performance of the company. This analysis helps the managers in effectively analysing
inefficiencies in each department of the country. Abbott Risk consultancy adopts this technique
for the purpose of detecting inefficiencies within the firm. This analysis helps the managers in
detecting the inefficiencies in the business along with the reason behind those inefficiencies. In
this regard, by adopting this technique of management accounting, managers become efficient in
detection of problems in the firm. In addition, with the help of analysing the reason behind those
problems, they become more capacle to develop strategies and plans for the company in order to
improve the efficiency of company to respond various financial problems.
9

Financial governance
Financial governance is a technique that provides numerous rules and regulations
regarding monitoring and control of a range of financial activities performed by the business
organisation. This technique can be defined as the best technique of monitoring and controlling
various financial activities (Bui and De Villiers, 2017). Alpha Financial Markets Consulting
firm adopts this technique. With the help of this techniques, its managers have improved their
efficiency in maintaining effective monitoring and developing their controlling measures
regarding all the financial activities of the firm. As this technique only focuses on the financial
performance of the business, they become more capable of monitoring and controlling numerous
financial inefficiencies of the firm and helping the company in effectively responding to each
and every financial problem of the company.
In this regard, by analysing each technique of management accounting system, it can be
evaluated that there are various techniques available in the management accounting system in
order to manage and control financial activities of the company. Key performance indicator can
be considered as the best technique as it helps in controlling each activity of the company
including manager's own performance. In this order, it helps in providing more efficiency of
controlling the overall business performance. On the other hand, other techniques may provide
negative results to the company, as adverse result may arise due to change in the economy of the
country rather than decline in the inefficiencies of business. Further, as financial governance
provides rules and guidelines regarding management of financial activities only, therefore, it may
also provide the negative results in case there is inefficiencies in any non financial activities of
the company.
CONCLUSION
From the above study it has been concluded that, MA is an effective process which helps
in strategic decision making by analysing the financial data for higher operational productivity.
This study also helps in determining various MA systems which helps in forecast the future,
value stock and controlling cost. It will further examine marginal and absorption costing
techniques. It will also conclude, MA reporting which helps management in giving clear picture
about the performance of the company. It will further evaluate, various budgetary tool which
helps in comparing the actual performance with the budgeted plan. Furthermore, this report will
compare financial problems of different organization using various MA tool and system for
higher results.
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REFERENCES
Books and Journals
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Reviving contextuality in contingency theory based management accounting
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Malmi, T., 2016. Managerialist studies in management accounting: 1990–2014. Management
Accounting Research. 31. pp.31-44.
Hall, M., 2016. Realising the richness of psychology theory in contingency-based management
accounting research. Management Accounting Research. 31. pp.63-74.
Tappura, S and et.al., 2015. A management accounting perspective on safety. Safety science. 71.
pp.151-159.
Turner, M.J and et.al., 2017. Hotel property performance: The role of strategic management
accounting. International Journal of Hospitality Management. 63. pp.33-43.
Bui, B. and De Villiers, C., 2017. Business strategies and management accounting in response to
climate change risk exposure and regulatory uncertainty. The British Accounting
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Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability assessment,
management accounting, control, and reporting. Journal of Cleaner Production. 136.
pp.237-248.
Noreen, E.W., Brewer, P.C. and Garrison, R.H., 2011. Managerial accounting for managers.
McGraw-Hill Irwin.
Gooneratne, T.N. and Hoque, Z., 2016. Institutions, agency and the institutionalization of
budgetary control in a hybrid state-owned entity. Critical Perspectives on Accounting. 36.
pp.58-70.
Mohamed, I.A., Kerosi, E. and Tirimba, O.I., 2016. Analysis of the Effectiveness of Budgetary
Control Techniques on Organizational Performance at DaraSalaam Bank Headquarters in
Hargeisa Somaliland.
Barry, J. and Dent, M., 2017. New public management and the professions in the UK:
reconfiguring control?. In Questioning the New Public Management (pp. 7-20). Routledge.
Marina, N and et.al., 2016. Economic assessment and budgetary impact of a telemedicine
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Online
Zero-Based Budgeting (ZBB). 2019. [ONLINE]. Available
through:<https://www.investopedia.com/terms/z/zbb.asp>\
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