Ryanair Financial Issues and Solutions

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This assignment examines the financial challenges faced by Ryanair, specifically focusing on issues related to cost accounting, inventory management, and delivery times. It analyzes how these factors contribute to financial difficulties and proposes solutions such as implementing Key Performance Indicators (KPIs) and Benchmarking to address these problems. The report also compares Ryanair's approach to financial management with that of EasyJet, highlighting key differences in their strategies.

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Management Accounting

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Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Importance of different management accounting systems used by management of Ryanair
.....................................................................................................................................................1
P2. Methods or techniques of management accounting reporting..............................................4
M1: Advantages of various accounting system..........................................................................6
D1: Critically evaluate how management accounting system and management reporting is
integrated with each other...........................................................................................................6
TASK 2............................................................................................................................................7
P3 Calculation of cost by using marginal costing and absorption costing..................................7
M2: Analysis of accounting tool.................................................................................................8
D2: Financial report regarding interpretation of Data.................................................................8
TASK 3............................................................................................................................................8
P4 Advantages and Disadvantages of different types of planning tools which helps in
budgetary control........................................................................................................................8
M3: Analysis of using different planning tools and their use in preparation and forecasting of
budget in context of Ryanair airlines........................................................................................10
D3: Evaluation of planning tools..............................................................................................10
TASK 4..........................................................................................................................................11
P5 Comparison of Ryanair with Easy Jet regarding use of different management accounting
system to respond financial problems ......................................................................................11
M4: Evaluation of financial issues............................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13
.......................................................................................................................................................14
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INTRODUCTION
It is effective system which helps in management of different operations of organisation
in well organised manner. With the help of this system understanding between different
departments is increased. Different accounting systems are important for every kind of
organisation whether small or large in nature. It helps in attainment of sustainability in their
business performance and accomplishment of targets within stipulated period of time. Such
accounts also helps in preparation of reports which provides the information to the internal
parties of organisation. Such financial and non financial information contributes in enhancement
of decision making power of management regarding effective operation of their day to day
operations. There are large number of benefits which are achieved by organisation like strategic,
performance and risk management. It also helps in planning, monitoring and controlling different
activities of departments which helps in improvement of the performance of each and every
employee. Ryanair is airline organisation which provides their services in Ireland and UK. The
management wants to implement different accounting systems regarding improvement of
performance (Abdel-Kader, 2011).
In the present report explain about, different management accounting systems,
application of absorption and marginal costing in preparation of income statement, preparation of
cash budget for three months of January, February, March, advantages and disadvantages of
different types of planning tools which are used for the purpose of budgetary control. Also,
comparison between the Ryanair and Easy Jet regarding adaptation of management accounting
systems which helps to respond financial problems.
TASK 1
P1. Importance of different management accounting systems used by management of Ryanair
Ryanair provides airline services between Ireland and UK. It was founded in 1985 by
Ryan family. The main aim of organisation is to provide the best services and attain
sustainability in their business operations. At present, Ryanair is considered as full service
conventional airline which has two different classes of seating. They are leasing three different
types of aircraft. It is observed that due to the application of the different approaches there is
growth in the number of passenger volume but after that they have to bear losses in their
business operations in 1990. The issues which are faced by airline organisation is turbulence in
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operations, disposing of five chief executive officers and losses of IR £ 20 million. There are
large number of options are carried out by the management of organisation to fight with situation
and overcome from the losses. For this purpose, they restyle their operations to become the most
low-fares, no-frills carrier on the basis of the model of South-west airlines which is one of the
successful airline organisation (Albu and Albu, 2012).
Tony Ryan head of the Ryanair airline organisation decided to appoint fresh management
team in organisation. The main aim of such team is to implement different accounting and
reporting systems to reorganise their operations and take information based decision. Such team
is headed by Michael O'Leary. Appointment of such new management team turns around the
fortune of company and in 1997, provides IPO on the Dublin stock exchange and NASDAQ.
The main function of such new management team is to application of principles of
management accounting to accomplish their targets.
Management accounting
Management accounting is the concept which includes the preparation of accounts and
reports which provides accurate and timely financial and statistical information which is used by
the manager to direct their day to day operations and short term decisions. The different reports
which are prepared under this system provides the different information regarding cash, sales
revenue, accounts payable, accounts receivable, outstanding debts, raw material and inventory,
variance analysis etc. Different management accounting systems which enhanced the decision
making of managers are job costing, inventory management, cost accounting, managerial
accounting, price optimisation system etc. The essential requirement of these accounting systems
is to manage the three major areas of organisation like strategic, performance and risk
management (Amidu, Effah and Abor, 2011). There is huge importance of all these systems for
the management of Ryanair regarding determination of the goals for each and every department
of company, preparation of the budgets with help of budgetary system which contributes in
comparison of actual performance of employees and finds out deviations.
Different types of management accounting systems
Michael O' Leary is the head of the new management team decided to adopt different
types of account systems which provide the information regarding the performance of different
departments. It helps in planning about future actions which provides the direction to employees

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and covert the fortune of company. The different accounting systems which are adopted by
Ryanair is defined below:
Price optimisation system: It is effective system which helps in determination of the
views of customers regarding the prices which are fixed by the management of Ryanair
for their different services. It also helps in identification that the prices which are decided
by company is able to meet the objectives and maximisation of the operating profit of
company (B Douglas Clinton CMA and CFM, 2012).
Cost accounting system: This system of accounting also known as product/service
costing system which is used by the management of organisation regarding estimation of
the cost of their services and the profitably which they derived from providence of such
service. Accurate estimation of cost is important regarding removal of unnecessary
expenses and improvement of their profit margin.
Inventory management system: It is considered as best software to track inventory
levels, orders, sales and deliveries. This software also provides the solutions regarding
the challenges which are faced by manager in effective management of stocks. EOQ and
ABC are two important part of this system. EOQ provides the information regarding time
period of ordering the stock again. It helps in optimum utilisation of their given
resources.
Job costing system: This method is used by the management of Ryanair to assign cost
to each and every single services which are provided by them. This system is effective
when more than one service is provided which is different from each other. It helps in
assigning the costs to different equipments and attain optimum results (Brandau and et.
al., 2013).
Importance of management accounting systems
There are large number of importance is gathered by the management of Ryanair. The
major benefits are derived regarding reduction of four main expenses such as aircraft equipment
cost, personal expenses, customer service cost and airport access and handling costs. Many other
benefits are also derived by Ryanair which are mentioned below:
Reduction or control of different costs: Implementation of different accounting
systems helps in reduction of many expenses of different aspects. Such different aspects
are mentioned below:
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- Aircraft equipment cost: The management of organisation adopts the strategy regarding
control the cost which are incurred on equipments I to buy the single type of aircraft's. In this
regard, in march 1998, Ryanair start purchasing new Boing 737-800 which is considered as next
generation aircraft. These aircraft's has common type of characteristics which helps in
reduction of various costs (Callahan, Stetz and Brooks, 2011).
- Personnel expenses: By use of such accounting systems, standards are set which are required
to achieve by every single employee of organisation. It helps in improvement of the productivity
of their high productive workforce. This will also includes about providence of remuneration on
the basis of their productivity such as pay incentives, commissions etc. Also making the
regulations regarding maximum working hours for pilots and cabin crew. It helps in reduction of
the expenses which are incurred on the management of personnel of Ryanair.
- Customer service costs: These systems are also used to make effective agreements which third
party contractors which helps in improvement of their current services. Such as aircraft handling,
ticketing and other services.
Measurements of performance: The two techniques of management accounting like
budgetary control and standard costing helps in establishment of standard costing
provision which helps in measurement of actual cost and deviations. On other hand, the
system of budgetary control helps in measurement of efficiency of all the employees and
improvement of the current services of Ryanair (Fleischman, Walker and Johnson,
2010).
P2. Methods or techniques of management accounting reporting
Accounting reports refers to recording of data and information relating to the daily
transactions of company and other details are recorded which help management to make an
effective future decision. It is the liability of manager to maintain such accounting reports in
order to find out the actual financial position of business with the help of which they can
implement suitable policies and programs. There are various methods which is used for the
reporting of different accounts. Such reports need to prepared by Ryanair company which
includes budget, accounts receivables, job cost report, inventory management etc. through which
they can store valuable information for the purpose of making an effective decision. Therefore it
beings beneficial result to company through providing them financial as well as non-financial
information related to business operations of company. It will help manager to monitor the
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performance and also able to identify the deviations if any, which restrict the company in gaining
competitive advantage. It is required to prepare such reports on annually, quarterly or monthly
basis. Various management accounting reports which need to be prepared by accounting
manager of Ryanair are discussed below:
Budget reports: It includes the budget preparation of company after analysing the
expenses incurred in previous years so that the company faces no shortage of funds while
executing business operations (Gates, Nicolas and Walker, 2012). Preparing budget directs the
employees to perform in right direction in order to achieve desired target within given time
frame. It restrict the employees who engaged in business operation to utilise available resources
in an optimum manner which increases productivity and profitability of company as well.
Accounts receivable report: The accounts manager is held responsible to prepare such
report in order to maintaining records of debtors so that they can identify the payment they
received in future from them. It secures company from the situation of financial crises thus it is
important to prepare such report by accounting manager of Ryanair. This report determined the
time period in which cash is recovered from their debtors. This also helps in communicating to
company about the problems or issues occurred in the process of collection. Accounts receivable
reports show the list of customers which are failed to make repayment to company so that it
direct the company to take strict policies and strategies for them to recover fund
Job cost report: This report is helpful in providing the amount of expenses which will be
incurred in execution of specific project in near future. Thus it is also considered as an important
report to prepare by accounting manager of Ryanair which help them in matching expenses with
the expected income. The manager must required to identify important areas where they can
attain huge profits so that he can allocate funds in the execution of such project. It also motivates
employees to give more emphasis on the function and put their maximum efforts in achieving
desired target. Through preparing this report, the company can save cost and time which makes
positive impact on the profitability of company (Harris and Durden, 2012).
Inventory management report: These reports helps company in retaining loyal customers
through providing them service without any interruptions. This report shows the sufficiency of
spare parts which is helpful when the any damage occurred in air planes. This will help
customers to use their services without facing any difficulties. Therefore it is important for

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manager to prepare such report through which they analyse the total availability of equipments
with the company.
Performance report: This report is prepare with a purpose of analysing the actual
performance of company so that they can implement corrective measures to remove deviations if
any. This report is report is generally based on the information related with past and previous
year data. Thus the preparing this report help company in achieving desired target within pre-
determine time period (Hyndman and Connolly, 2011).
M1: Advantages of various accounting system
Ryanair airlines get many benefits through adopting various accounting systems as it
helps in providing sufficient information which are useful in making an effective decision and
preparing suitable strategies which brings positive result to them. The advantages received by
Ryanair airlines are as follows:
Reduces cost: The accounting manager of Ryanair airlines is responsible to prepare
accounts through which they can evaluate the expected expenses incurred while providing
services. This will direct employees to utilise available resources in an optimum manner and
contributes maximum efforts in eliminating wastage.
Business decisions: As reports provides financial as well as non-financial information
which helps manager to make an effective decision regarding achieving desired goals and
targets. Through such systems, the manager can able to identify the factors which exist in
business environment due to which they can cope up with them in an effective manner.
Increase financial returns: With the help of job costing and inventory management
method, the manager can able to focus on important matters which brings positive outcomes to
company. It contributes more in increasing the financial return of Ryanair airline (Ihantola and
Kihn, 2011).
D1: Critically evaluate how management accounting system and management reporting is
integrated with each other
They both gives maximum contribution in the growth and success of Ryanair airlines in
competitive market. Adopting such methods and reporting systems helps in giving proper
direction to employees so that they can completed allotted task in an effective manner and also
motivate them to lead an organisation with a motive of increasing satisfaction level of their
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targeted customers. They both also help in monitoring business functions which are described as
below:
Relevant cost analysis: With the help of both management accounting and reporting
system, the manager can able to select best alternatives which are cost efficient and provide them
optimum solution in order to resolve all issues faced by them in the process of execution of
specific project (Mat, Smith and Djajadikerta, 2010).
Activity based costing methods: This help manager in determining the revenue which
will be generated from the business activities in near future. Such costing methods help in
identifying the cost which are going to incurred in certain activity.
TASK 2
P3 Calculation of cost by using marginal costing and absorption costing
Ryanair airline uses two costing methods, marginal costing and absorption costing, in
order to calculate different cost to the company. Using this, income statements are prepared
which are used for further analysis. It made an impact on the financial statements of company.
This benefit company in numerous ways such as forecasting, financial management, etc. These
two methods are given below:
Marginal costing: In this method, opportunity cost is identified that has incurred while
producing one extra unit of their product. In other words, changes that have occurred in
total production with increase or decrease of one (individual) unit. After calculating break
even point marginal costing can be applied which means fixed cost is absorbed and
variable cost is accounted. This method benefits in effective resource allocation that
further helps in achieving optimum results. To calculate marginal cost, divide change in
cost with change in quantity. Ryanair airline uses this method to attain success in
execution of their business process (Otley, 2016).
Absorption costing: In this method, cost is calculated on the basis of direct and indirect
expenses. Ryanair uses this approach to calculate cost that has incurred on production due
to expenses. Direct cost include expenses that are directly related to production such as
raw material, labour, capital, etc. whereas indirect cost include expenses that are incurred
indirectly such as electricity bill, rent of factory, etc. Managing of direct and indirect cost
has to be done efficiently using absorption costing.
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Sales (10*900) 9000
less:
Cost of Production (6*910) 5460
closing stock (10*6) 60
variable cost 5400
Contribution 3600
less:
variable sales overheads (600*1) 100
fixed overheads 300
400
NET INCOME AS PER MARGINAL COST 3200
NET INCOME AS PER ABSORPTION
COSTING:
Sales (10*900) 9000
less:
Cost of Production (910* 5760
Gross Profit 3240
LESS:
Fixed and variable cost:
variable non manufacturing overheads 100
NET INCOME AS PER ABSORPTION
COSTING: 3140
M2: Analysis of accounting tool
It has been noted that adopting an effective accounting tools help in achieving maximum
advantage to Ryanair Airlines. This will help them in record entry of daily transactions into
financial statements. It also helps manager to forecast the situation which prepares them to cope
up with such situation.

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D2: Financial report regarding interpretation of Data
As per the above calculation it has been observed that profit generated through using marginal
and absorption costing has been evaluates carefully. As per marginal costing method, profit is
ascertained of 3200 and As per absorption costing method profit is achieved of 3140.
TASK 3
P4 Advantages and Disadvantages of different types of planning tools which helps in budgetary
control
Budget: It is considered as report which provides the estimation of revenue and expenses
which are going to incurred by Ryanair during specified future period of time. It is re-evaluated
on continuous basis to make the provisions and standards more better which effectively guides
the employees. It is internal tool which is used regarding controlling of risk which are arise in
organisation (Schäffer, 2013). The different factors which are included in this report are resource
quantities, cost and expenses, assets, liabilities and cash flows. Budget is the sum of money
which is allocated to different departments of Ryanair regarding accomplishment of their
particular purpose. The essential requirements which are need to have by every budget are:
Controlling of resources
Communication of plans with centre manager
Motivation of mangers regarding accomplishment of budgeted goal
Evaluation the performance of managers
Providence of visibility regarding the performance of organisation
Helps in achievement of accountability targets
Budgetary control: It is one of the important tool of budgeting which helps in
performance of the functions like planning, coordination and analysis. All such operations have
great influence upon operations of management. The process of budgetary control is associated
with the every part of business which is segmented into various sections which are known as
budget centre. This system provides the opportunity regarding management of the different
resources without incurring extra expenses (Sisaye and Birnberg,2010).
Process of budgetary control
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It is a control technique which helps in comparison of actual results with budgeted. It
helps the manger to monitor organisational functions. The process which is involved in
budgetary control in mentioned below:
Consultation with managers: It includes the process of evaluation of information which
is gathered from each other. Such consultation helps in management of cost and
expenses. The four major expenses which are controlled by Ryanair is aircraft's
equipment expenses, personnel expenses, customer service cost, airport access and
handling cost.
Effective assumption: After evaluation of the information, the main function is
assessment of future expenses and issues. It helps in assortment of costs in more effective
manner. The main purpose, behind this is to removal of extra cost (Stergiou, Ashraf and
Uddin, 2013).
Fixation of organisational data for budget to attain targets: This includes the process
of ascertainment of information from different departments of organisations so, effective
budgets are prepared for each and every department. It enhance the planning power of
manager by use of such set standards.
Measurement of information with budgeted: It is important part of budgetary control
process which includes the comparison of actual performance with standards which are
prepared by managers. It helps in identification of deviations and provides more
appropriate solutions which helps in improvement of the performance and decision
making.
Review analysis: It is considered as last stage of budgetary control process, which
includes the process of overview of all the steps of budgetary control. It helps in
ascertainment that the process should be goes in right direction or not. If everything goes
right then it is further transferred to higher authorities for their approval (Viere, von
Enden and Schaltegger, 2011).
Planning tools: Such tools are considered as instruments which provides direction to
organisation regarding their different action steps relating to implementation of an initiative,
program or intervention. Such tools are used by the management of Ryanair to plan about their
future actions which helps them for recovering from their losses and attraction of the large
number of customers towards their services.
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Forecasting tools: These tools helps in prediction of future activities on the basis of their
past and present information or most common trends which are persist in market. Different
forecasting tools which are used is time series, cross-sectional, longitudinal data etc.
Advantages: It helps in determination of objectives. This can be further used by the
manager regarding prediction of cost and sales which they are getting in future (Williams
and Seaman, 2010).
Disadvantages: Estimations are based on assumptions. So, the plans and budgets doesn't
provide accurate and reliable information.
Scenario tools: It is effective tool which helps in ascertainment of the uncertainties
present in organisation and making of plans accordingly. It also helps the management regarding
evaluation of the efficiency of strategies, tactics and plans.
Advantages: It helps in preparation of contingency provisions which helps in reduction
of future losses and making of the future operations more strong.
Disadvantages: Uncertainties which are assumed by the management not always become
right and reliable in organisational scenario (Zainun Tuanmat and Smith, 2011).
Contingency planning tool: This tool is used by the manager of Ryanair regarding
handling of critical situations in more effective and efficient manner. It helps in controlling of
risks which are present in organisation.
Advantages: It helps in reduction of losses which are incurred by organisation.
Disadvantages: The use of this tool is not easy. It is complex in nature.
Particulars January February March Quarter
Cash sale (40%) 140000 146000 152000 438000
Credit sales from last
month (80%)
172800 168000 175200 516000
Credit sale from two
month ago (20%)
35400 43200 42000 120600
Total cash collected 348200 357200 369200 1074600
Add: GST @ 10% 34820 35720 36920 107460

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Total amount 383020 392920 406120 1182060
M3: Analysis of using different planning tools and their use in preparation and forecasting of
budget in context of Ryanair airlines
There are various planning tools and techniques which need to be adopted by company in order
to achieve growth an success for longer duration. Such tools includes forecasting, scenario and
contingency planning tools help manager for preparation of budget which directly guide
employees to perform in right direction. Using different planning tools helps accounting manager
to plan different functions related with finance, management, cost expenses etc.
D3: Evaluation of planning tools
Adopting various planning tools and techniques contribute maximum in resolving financial
issues which restrict company in implementing new technologies and equipments. Preparing
financial statement such as income statements, cash flow, P&L by manager of Ryanair helps
them in identifying their actual financial position in market. Application of such tools helps in
determining the reason behind occurring problems or issues which help them in formulating an
effective policies to resolve such financial issues.
TASK 4
P5 Comparison of Ryanair with Easy Jet regarding use of different management accounting
system to respond financial problems
Ryanair and Easy Jet are two same sector organisation which provides their services in
airline industry. There are many financial problems which are faced by both organization while
providing their functions. The major issues which are arises in operational, investing and
financing activities (Zaleha Abdul Rasid, Rahim Abdul Rahman and Khairuzzaman Wan Ismail,
2011). Such problems are arise in organisation because of not using effective accounting systems
regarding recording of transactions. Due to not having proper record of different operations of
organisation, management of both organisation is not able to drive information and results which
enhance their decision making. There are many tools and techniques like KPI, benchmarking etc.
which helps in effective response to such financial issues.
Financial problems in Ryanair
The major financial problems which are faced by company are mentioned below:
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Profit level: In 1990, after increment in the volume of customers they bear heavy losses.
This will affects the overall profitability of organisation. Due to happening of such
situation, they face the issues regarding management of their day to day requirements.
Product and service quality: There are many competitors in market due to which the
organisation need to maintain the quality of services to improve their products. But due to
having inefficient management they hamper with the quality of their services. On other
hand, The quality of aircraft equipments is another big issues due to which financial
problem is faced by Ryanair.
Delivery or turn around time: Another issues of timely deliver of services creates the
situation of financial crisis in organisation due to not satisfying the requirements of
customers. Having large delay in flights affects their financial position and image.
Tools to respond financial problems
There are many tools which are used by Ryanair which are defined below:
Key performance indicators: It is effective method which helps in evaluation of the
performance of organisation. There are two kind of KPI are used by the Ryanair which
are called as financial and non financial. It helps in removal of the gaps in existing
performance.
Benchmarking: This system is used by the management to set standards which are
required to adhere by employees in performance of their different functions. It helps in
completion of tasks as per requirements.
Ryanair Easy Jet
They face the issues regarding large number of
unnecessary expenses. For this purpose, they
decided to adopt KPI which helps to keep
effective eye on their expenses.
Easy Jet is provided their function in large
number of countries. To effectively control
their operations they adopt the tool of financial
governance to respond financial issues.
Management fix SMART objectives for each
and every and department. It helps in effective
regulations of operations.
They adopt Benchmarking tool to provide
standards. It helps in effective management of
operations at different locations on the basis of
such provisions.
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M4: Evaluation of financial issues
There are various financial issues related with cost accounting, inventory management
etc. which ned to be resolved through adopting various techniques such as KPI and
Benchmarking. Other wise such issues makes negative impact on the productivity and
profitability of company.
CONCLUSION
It has been concluded from the above project report that it is essentially required for an
organisation to achieve growth and success through maintaining accounting reports and
implementing different techniques in order to resolves financial issues which makes negative
impact on the sustainability and profitability of company. Through using different accounting
system and reports brings valuable outcome to company in near future.
REFERENCES
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