Management Accounting Report: HSBC Holdings PLC Case Study

This report provides a comprehensive analysis of management accounting practices within HSBC Holdings PLC. It begins with an introduction to management accounting, differentiating it from financial accounting and highlighting its essential requirements. The report then delves into various management accounting systems, including price optimization, cost accounting, inventory management, and job costing, detailing their benefits and applications within an organizational context. It further explores different methods used in management accounting, such as performance reports, budget reports, and cost managerial accounting reports. The report also examines planning tools used in management accounting and how these tools can be applied for preparing and forecasting budgets. Finally, it addresses how management accounting systems can respond to financial problems, providing an evaluation of planning tools for solving financial issues. The analysis incorporates relevant examples and case studies to illustrate the practical implementation of these concepts within HSBC.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essential requirements of different types of management
accounting systems.................................................................................................................1
M1 Benefits of management accounting systems and its application within an organisational
context....................................................................................................................................3
D1 Management accounting systems and management accounting reporting is integrated
within organisation.................................................................................................................4
P2 Methods that are used for management accounting period...............................................4
TASK 2............................................................................................................................................6
P3 Appropriate techniques of cost analysis to prepare income statement for HSBC...........6
M2 Several range of management accounting techniques and appropriate financial reporting
documents.............................................................................................................................11
D2 Financial reports that accurately apply and interpret data for a range of business activities
..............................................................................................................................................11
TASK 3..........................................................................................................................................12
P4 Planning tools used in management accounting.............................................................12
M3 Planning tools and their application for preparing and forecasting budgets..................14
TASK 4 .........................................................................................................................................14
P5 Management accounting systems to respond to financial problems...............................14
M4 Responding to financial problems with context of management accounting...............16
D3 Evaluation of planning tools for accounting appropriately to solving financial problems16
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting is a systematic approach which is used by the organisation to
track the financial and statistical information. The information collected with the help of
managerial accounting system helps the business managers in their decision making process.
Every business uses accounting techniques to support strategy formation, business execution and
risk taking. In this report, the chosen association is HSBC holding plc. It is the 7th largest
multinational banking and financial services holding company. The company provides services
like Retail banking, corporate banking, investment banking, mortgage loans, private banking,
wealth management, credit cards and insurance (Zayed and Liu, 2014).
. In this respective report the areas which the company focuses are different management
techniques and reporting methods , planning tools used in management accounting. At last it
describe about how management accounting is used by business to solve their financial
problems.
TASK 1
P1 Management accounting and essential requirements of different types of management
accounting systems.
Management accounting involves providing informations regarding the scarce financial
resources and their allocations. These are the reports prepared as per the needs and requirements
of the organisation's. The company like HSBC is required to establish managerial accounting in
their business in order to predict about the future events, companies costs and revenues and this
would also help them in comparing overheads, hourly labour costs, productivity figures between
departments. These reports are based on management's informational needs and include
budgeting, break even charts, products cost analysis, trend charts and forecasting. For
maintaining this the company is required to cover all the types of management accounting which
are mentioned below :-
Difference between Management accounting and Financial accounting :
Management accounting Financial accounting
Management accounting is the one which is
prepared for the internal use of managers and
Financial accounting are the one prepared for
the used of stakeholders, creditors, banks and
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employees. government.
It does not involve any legal requirement. These are necessary to be prepared by the
limited companies.
Management accounting is prepared
considering specific areas of the business.
This provides us with the information on the
entire organisation.
Management accounting is prepared to
measure financial and operational
performance.
Financial accounting measures only financial
data.
Price optimisation system: It is a crucial component of price management which is used
by business to determine the customer's reactions on different prices of products and services. If
the company HSBC adopts the strategy of price optimisation they can easily identify the initial
pricing , promotional pricing and markdown pricing (Yang and Liu, 2017).
Initial pricing – This price optimisation tool works well when the organisation has a stable base
and long lasting life of their services.
Promotional pricing – This would helps the business to set temporary prices of their services to
build the customer base.
Discount pricing – This would help the business to sell short term services like insurance ,
credit facilities.
This strategy will also helps HSBC holding plc in saving time, providing with market
transparency and full control.
Cost accounting system: This strategy of management accounting helps in computing
the overall cost of operations and activities by evaluating prices of each units separately. It has
been designed by the managers to identify the flow of inventory (van Helden and Uddin, 2016).
Cost accounting system would help HSBC in immediate saving and would also ensure that the
banks remains competitive in the longer term, and would also help them in fixation of price ,
controlling costs and facilitating short term decisions, especially during the period of depression.
Inventory management system: It is an ongoing process in the business which is used
for balancing inventory and it also helps in de terming that how much inventory is exactly
needed. Inventory management system helps the organisation's in keeping records of every items
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and assets. HSBC is required to install proper inventory management system in their banks to
ensure improved cash flow, better reporting and forecasting facilities, proper planning, enhanced
transparency and better organisation. In banking sector this would also help in advance user
security, active directory, assets depreciation etc.
Job costing system: It is beneficial in the computing the cost of each job which is assigned to
different activities. If HSBC adopts this strategy it can easily identify the following points :-
 It acts as a gauge determining the profitability of the job and helps for the future
customers or institution to decide whether to take up the job or not. It also gives us an
idea about the feasibility of the job (Tappura and et. al., 2015).
 Budgetary control comes into action when taken consideration of the various overhead
charges which are predetermined for each department.
 Job costing provides an easy computation of cost overheads for specific needs,and in a
precise manner. Job costing enables the supervisors to keep track of various factor such
as money, materials and the performance of the employees.
 Job costing acts as a form of analysis detailing all the type of costs that are present
throughout the manufacturing process. This includes the direct costs, the labour costs,
and the overhead charges.
Characteristic of good information system
 Reliable- It is essential for HSBC to implement the data that is relevant and reliable for
the organisation. Moreover this data need to be maintain as trustworthy for the
organisation that is accurate, consistent and related with facts that need to implement in
project.
 Accuracy- Data which is collected by the organisation needs to be accurate. So at time of
implement them in the project management of HSBC derive positive results in the
organisation.
 Up to date- In context of this data whereas organisation implement information that is
desirable and updated because there is constant changes are changed in information that
is present in the market.
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M1 Benefits of management accounting systems and its application within an organisational
context
Management accounting does not works on the principle of national accounting
standards. In this system the business owners design the management system by themselves in
order to carry out their business operations. Management accounting has certain benefits, these
benefits are usually concerned with the ability for companies to enhance their profitability and
performances. proper allocation of cost can also develop and creates competitive advantages for
the owner of the business (Scherbina, Afanasyeva and Lapina, 2013). These benefits would also
help HSBC in certain ways which are as follows :-
Reduce expenses: This helps the business in reducing their operational expense . It would
also helps the manager of HSBC to reduce the cost of operation by allowing them to evaluate
and identify that how much it cost to run the business.
Improve cash flow : Management accounting has a great impact on improving the
process of cash flow as it keeps complete records of all the floes of goods and services . This also
helps the company Like HSBC by allowing its manager to roadmap the financial budget which
will further reduce their unnecessary cash expenditure.
Business decisions : This will also help the manager of HSBC banks to improve their
business decision making process. The managers here will use quantitative analysis to assure that
the manager have the clear understanding regarding the business decision-making.
D1 Management accounting systems and management accounting reporting is integrated within
organisation
Management accounting system is interconnected with management reporting system
that helps them to make effective decisions in the organisation. It results for the improvement of
organisation (Parker, 2012). Example through which it is easy to understand cost accounting
system. HSBC analysis the total cost of their operations in order prepare the budget on the basis
of current financial position of an organisation which enhance productivity of their operations
and employees. Example- Cost accounting reporting helps an organisation to find actual cost of
their activities. But this are manage along with cost accounting system that creates issue for the
organisation as it is time consuming. While the results which are prepared by them helps HSBC
to find out profits margin which is earned by them through analysing their production cost.
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P2 Methods that are used for management accounting period
Management accounting is considered different methods that are used by HSBC in order
to keep records for every business transaction that take place in the organisation on daily basis.
This helps management to take relevant decision as on basis of information that is contain by
society in order to generate more profits in the organisation (Nielsen, Mitchell and Nørreklit,
2015). This reporting system are discussed as below briefly:
Types of reports :
Performance report : This reports are based on the performance of different factors like
operation, functions etc. that are performed by the organisation in order to achieve their desired
goals. This helps organisation to generate report of employees and functions that are done HSBC
as their routine work. Along with this it is also a part of management plans through which
management communicate with their employees. HSBC formulate performance management
card on daily basis in order to communicate with employees that help to overcome from different
issues by explaining weak points to employees.
Budget report : Budgets are prepared to compare the actual cost with the estimated cost
specifically in management accounting system. The main intention of budget is to control the
cost and expenses that are unnecessary bear by organisation. In context of HSBC it is essential
for them to control their expenditure in order to increase their profits. Finance department of
organisation develop budget in order to allocate their resources effectively. Along with this it
also helps them to reduce cost of operations and increase the availability of funds in the
organisation.
Account receivable ageing reports : This is an essential tool for the organisation that
helps to manage business with systematic approach. By maintaining this approach it is easy for
organisation to find out the number of debtors that are present in the organisation. It includes the
amount which is paid by customer and to measure time which is obscure by customers
(Kacharava, 2016). For HSBC it is essential for them in order to check the availability of funds.
Cost managerial accounting report : This report is prepared to know the cost of
amount spent on manufacturing the article . It provides full detail about the money invested in
carrying out business operations. Cambridge manufacturing Ltd. needs to prepared this to control
the cost which unnecessarily affects the profitability of the business and to understand the exact
expenditure of the organisations so that the optimization of resources can be done properly.
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Cost report : Cost accounting is essential for the organisation because it helps them to
calculate the amount that is expense by them for conducting particular project. They provides
whole detail that is invested by them in order to complete their operations. It is important for
HSBC to measure and control the cost that is unnecessarily increases the expenses of
organisation.
Inventory Managerial Report- This is the report which is managed by supervisors in
an organisation which considers about the availability of raw materials that is present in the
organisation. It is beneficial for HSBC because it helps them to deliver quick services in the
market. Along with this it helps them to manage raw material which are required to produce
goods.
TASK 2
P3 Appropriate techniques of cost analysis to prepare income statement for HSBC
COST: The term cost includes all factors that are measured on monetary basis. This refers to
the amount that are essential to paid for purchasing any item inside the organisation. Usually cost is
the evaluation of efforts, machine, materials, resources etc. that are essential for organisation to
manufacture a product or service (Gond and et. al., 2012). Moreover cost is the amount that is
required to complete a business or job. Marginal and absorption are two type of cost that helps an
organisation to prepare income statement.
Marginal costing : It refers to increase and decrease in the price of product through which
there is changes in the cost of organisation production process. This refers to the cost that is used for
producing specific units in the organisation. Sometimes there is change in variable cost of
organisation but fixed cost is always stable for all business (Gibassier and Schaltegger, 2015).
Calculation of profit using marginal costing:
Income statement under Marginal costing method for month of May & June
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Absorption costing: It refer to a cost accounting method that is used for find out the current
inventory value. For this is includes variable as well as fixed cost that is incurred during the
production process which governs that it include direct and in-direct cost, overhead cost etc. that is
used to measure the value of inventory.
Calculation of profit using absorption costing
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Material cost variances:
Given information is as follows-
Standard price(SP)- £10 @ per kilograms
Actual price (AP)- £ 9.5 @ per kilograms (20900/2200)
Actual quantity (AQ)- 2200 Kilograms
Standard quantity(SQ)- 1000 Kilograms
Material price variance (MPV)= (SP-AP) * AQ
(10-9.5)* 2200= £1100 F
Material usage variance (MUV)= (SQ-AQ)*SP
(1000-2200)*10= £12000 A
Material cost variance (MCV)= Standard material cost- actual material cost
Valuation of closing stock using LIFO
Date Reference Purchase Issues Balance (Inventory)
Units £/Units £ Total Units £/Units £ Total Units £/Units £ Total
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05/01 Previous balance
(inventory) 40 3.00 120.00
05/12 40 3.00 120.00
Bought 25 units
at £ 3.60 each 20 3.60 72. 20 3.60 72.00
05/15 20 3.60 72.
Issued 36 units 16 3.00 48. 24 3.00 72.00
05/20 24 3.00 72.00
Bought 20 units
at £ 3.75 each 20 3.75 75. 20 3.75 75.00
05/23 Issued 10 units 10 3.75 37.5 24 3.00 72.00
10 3.75 37.50
05/27 9 3.75 33.75
Issued 25 units 25 3.00 75.00
05/30 Issued 5 units 5 3.00 15.00 4 3.75 15.00
Valuation of closing stock by using weighted average method:
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