Management Accounting System, Techniques, and Reporting Analysis

This report provides a comprehensive introduction to management accounting, focusing on its application within a financial advisory firm, Hargreaves Lansdown plc. It begins with an overview of management accounting concepts and essential system requirements, including cost accounting, price optimization, job costing, and inventory management systems. The report then explores various management accounting reporting methods, such as inventory reports, cost reports, budgetary reports, and performance reports, detailing their benefits and applications. A critical evaluation of management accounting systems and reporting is presented, highlighting the advantages and disadvantages of implementation. The report also includes a practical section demonstrating the preparation of financial reports using marginal costing and absorption costing techniques, followed by a comparison of these methods. This analysis offers valuable insights into cost management, financial reporting, and decision-making processes within a business context. The report emphasizes the importance of these tools for effective financial planning and control within an organization.

MANAGEMENT
ACCOUNTING

INTRODUCTION
Management accounting system is a set of various guidelines and procedures along with
various rules and regulations for the purpose of providing company's performance relating to
financial activities to the managers (Albaddad and Nassar, 2018) . With the help of this system,
managers can be informed in more effective way and managerial accountants can help managers
in formation of more effective strategies and plans for the business organisation. In addition,
there are also various tools and techniques available in the management accounting system with
the help of which the business organisation can include more effective control and management
of each business activity relating to various financial transactions of the firm.
Hargreaves Lansdown plc is a medium sized financial advisory firm. it was established in
the year 1981. Presently the company provides financial advice to a range of hospitality, trust,
manufacturing companies, etc. in the present assignment, a brief introduction regarding overall
management accounting system is being provided along with numerous methods of management
accounting reporting and their advantages and disadvantage. Further, the study also includes a
calculative part. In that part of study, it shows preparation of various financial reports by using
the most appropriate techniques of management accounting system. In addition, the study also
provides a detailed discussion about different planning tools of budgetary control system to be
used by the managers while performing their managerial functions. At the end of project, it
shows numerous management accounting systems that can be used by the managers in order to
help the corporation in responding to various financial problems arise the business.
LO1.
P1. Explaining the concept of management accounting and the essential requirements of its
systems
Management accounting refers to the application of the appropriate concepts and the
techniques in order to process the historical and the projected economic data of the enterprise
that assist in developing the reasonable objectives for making rational decisions towards
achieving these objectives (Xiong and Zhang, 2019. It is mainly concerned with effective and
efficient management of the business through presenting the information that facilitate efficient
planning and the control. Management accounting relates with the accounting information that is
useful for the management of an entity. There are various systems under the management
accounting which plays an essential role in smooth functioning of the business are as follows-

Cost accounting system- This system relates with the ascertainment of the cost involved
in the process of production. It plays a crucial role in the decision making process of the
company as it helps in improving the planning of the resources and its allocation which in turn
helps in gaining the efficiency in the cost and in the overall profitability. Cost accounting system
provides the firm in estimating accurate cost of the products which is very critical for running the
operations as per the standards and the strategies set. Mainly there are two major kinds of the
cost accounting system that includes job order costing and the process costing. Job order costing
is the method that accumulates the manufacturing cost of each job and in process costing,
accumulation is made for manufacturing cost of each process.
Benefits:
 It is beneficiary for Hargreaves Lansdown plc in maintaining cost control within the
firm.
 It helps in elimination of cost wastage within the firm. It helps in improving profit earning capacity of the business.
Price optimization system- It is called as the mathematical tool that is used by the
company in order to determine the response of the customers at different price level towards the
product and the services of the organization. Price optimization system is essential for the
enterprise for fixing the best prices that meets the profit maximization objective efficiently. It is
the best tool for determining the retail value of the consumer product and the services.
Benefits:
 Adoption of price optimisation system is essential for setting the most appropriate price
of each product.
 This system helps in analysing the maximum price of product that customer would be
ready to pay. It is required to be adopted in order to sustain the customers with the firm for long time.
Job costing system- This system of the management accounting refers to the process that
accumulates the information relating to the cost attached with the particular production and the
services job. This information is critical to the organization in order to quote the prices that
allows for the reasonable profits (Shiqi and Yuan, 2019). It includes the details regarding the cost
of the direct material, overhead and they direct labour cost. The information provided by this
system is also used for assigning the invariable cost to the goods manufactured.

Benefits:
 Job costing system is required by those business organisations that provides customised
goods or services to its customers. This system helps in determining the cost incurred by the firm in each stage of production
of customised products.
Inventory management system- This system means the management of the inventory
where it helps in tracking the goods over the entire supply chain in which the business operates.
It facilitates monitoring of the stocked goods. Adoption of this system is helpful in maintaining
sufficient amount of inventories with the business and avoiding shortage of inventory. In this
regard, it can be said that this system of management accounting is required by those business
units that maintains inventory in the business for either using it for production purpose of for the
reselling purpose as well. With the help of this system, managers can ensure efficiency of the
firm in controlling the wastage of inventories in the company.
Benefits:
 This system is required to be adopted by each business organisation as each firm needs to
maintain some amount of inventory with it.
 It helps managers in maintaining their eyes of flow of inventory within or outside the
business organisation.
Management accounting reporting:
Management accounting reporting can be defined as a process of analysing various
monitory and non monitory transactions relating to financial activities of the company and
prepare the report and recording all the transactions in it. Adoption of management accounting
system can help the Hargreaves Lansdown plc can help its managers in understanding
performance of business organisation in an effective way so as to develop their strategies, plans
and procedures more efficiently.
Following are the methods that can be adopted by the managerial accountants in order to
obtain management accounting reporting within the business organisation:
Inventory reports:
It is the method that can be adopted by the business organisation in order to summarise
various activities regarding movement of the stock of the company either within the business or

outside the firm. With the help of inventory management reporting, managers of Hargreaves
Lansdown plc can maintain records of all the stocks held by the business either for the
production purpose or for the further selling purpose (Hoang and Joseph, 2019). Inventory
reports of the company provides details about both units of inventory purchased, sold or
maintained by the firm along with the price of stocks in which it has been bough or sold. In this
regard, it can be seen that inventory reports can help the managers in maintaining a detailed
information regarding flow of stocks within the company.
Benefits:
 Maintenance of inventory reports can help managers in maintaining a detailed record of
inventories held by the company.
 With the help of this report, managers of Hargreaves Lansdown plc can detect wastage of
inventories within the firm.
 With the help of this report, company can identify the total amount of inventories held by
the company at a specific day.
Cost reports:
As the name describes, cost reports are those that contains details regarding numerous
types of costs incurred by the firm within a specific time period for the purpose of performing
various business operations. By maintaining cost reports, Hargreaves Lansdown plc can help its
managers in providing details regarding various types of costs incurred by each department of
the firm. In this regard, they can easily identify the areas in which company can cut down the
cost and areas in which business is wasting cost (Wnuk-Pel, 2018). Along with this, they can
develop their new plans and procedures for performing various business activities through which
they can develop cost efficiency within overall business organisation.
Benefits:
 Cost reports are beneficiary for Hargreaves Lansdown plc in order to maintain records of
various costs incurred by it during a specific time period.
 It helps the company in detecting the areas of cost wastage within the firm.
 It is essential to be maintained in order to eliminate cost wastage within the company.
Budgetary reports:
Budgetary reports are those that provides details regarding forecasts of managers for the
business in performing numerous activities. These reports helps managers in predicting needs of

the company in advance through which they can efficiently maintain the sufficiency of each
resource required by the company during a specific period. In this regard, it can be analysed that
with the help of budgets, managers can set short term goals of the company and can formulate
their plans for the company in order to achieve them. Therefore, maintenance of budgetary
reports are helpful for Hargreaves Lansdown plc in order to make the company in achieving its
set goals and objectives in more efficient way.
Benefits:
 Budget reports are helpful for short term planning of the company.
 It helps in analysing the needs and demands of the company in the near future.
 Preparation of budgets can help the managers in maintaining sufficient amount of
resources with the business and elimination of shortage as well.
Performance reports:
These are the reports that provides information regarding performance of each
department of the company. Performance reports are helpful for the companies in analysing
improvement or decline in the overall performance of company. While preparing performance
reports, managers analyse and summarise performance of various departments of business
(Coyte, 2019). Therefore, these reports can help Hargreaves Lansdown plc in maintaining
records of performance of each department including managerial performance so that the
managers can evaluate the performance and develop their strategies in order to improve the
performance of overall company.
Benefits:
 Performance reports are helpful in detection of overall efficiency of the business.
 It helps in detecting various inefficient areas of the firm.
 It is required to be adopted in order to help managers in developing their strategies
regarding improving the efficiency of each department and overall business organisation
as well.
Critical evaluation of management accounting system and management accounting
reporting
From the above analysis of management accounting system and management accounting
reporting, it can be analysed that both, management accounting reporting and management
accounting systems are essential part of each business unit. Adoption of both in the Hargreaves

Lansdown plc can help its managers in improving efficiency of managers in formulation of their
plans and procedure of the firm for managing and controlling system. Both provides several
methods and guidelines for the managers with the help of which they can formulate their
strategies and plans in more effective way.
Although, if the Hargreaves Lansdown plc adopts these systems, it would results in
increase in various managerial functions of the company. In addition to this, it would also need
to employ more professionals within the business which would increase the cost of the firm. On
the other hand, as these systems will improve the efficiency of the company through which it
will become able to generate more profits for the company. In this regard, it can be said that
Hargreaves Lansdown plc should adopt these systems within its business operations.
LO 2
P3 Preparation of various financial reports using appropriate techniques of management
accounting system
Marginal costing technique

Absorption costing technique

Difference between Marginal costing and Absorption Costing-
There are two method of costing for the valuation of goods. Marginal Costing is the
method of costing in which the closing inventory is calculated on the basis of marginal cost per
unit. Marginal cost per unit includes only variable cost occurred in the production of the goods
(van der Poll and Mthiyane, 2018). Absorption Costing uses all the production costs which are
obtained while production of the goods.
Marginal Costing Absorption Costing