Management Accounting Systems and Reports: A Case Study of Dyson

This report highlights the need for management accounting systems and reports in decision-making, with a focus on Dyson. It covers topics such as inventory management, cost managerial system, and management accounting reporting. The report also includes an analysis of income statements using marginal and absorption costing methods. Planning tools applied for budgetary control, such as budget and budgetary control, are also explored.

Management
Accounting

Table of Contents

INTRODUCTION
Management accounting is defined as an application of skill, knowledge and expertise in
the preparation of financial and non-financial data (Arena and Arnaboldi, 2014). It is a practice
of identifying, measuring, analysing, interpreting and communicating the information which will
be used by managers in the decision-making process. It includes the cost savings of the
organization in keeping cash flow, enforcement ability, financial strength of the company and
more. Based on such inner data, an organization may choose suitable alternatives and take
choices aimed at the future development of the company. This acts as a tool for the management
in forming plan of actions and achieving better control over the various activities performed in
an organisation. For the following report, a British engineering company has been selected i.e.
Dyson which is established in UK. It was founded on 8th July, 1991, 28 years ago by James
Dyson. The company designs and manufactures household appliances like vacuum cleaners, air
purifiers, heaters, dryers etc. This report highlights on the need of management accounting
systems and reports by businesses as these help in decision-making. Also, different types of
budget, planning tools and other indicators are used to resolve the financial issues faced by
Dyson are also covered under this document.
TASK 1
Management accounting systems:
Management accounting: It refers to a tool which helps in preparation of financial and
non-financial information that is used by management of a company. This also analysis business
costs and operations in order to prepare internal reports and records which can aid the managers
in the process of decision-making. The major aim & purpose of management accounting is to
evaluate an organisation's performance, efficiently utilize the resources, plan for future course of
actions etc. With the help of this technique, Dyson prepares its financial statements and take
important decisions about the non-financial items or other aspects required on a day-today basis.
Management accounting system: Management accounting systems are internal part of
company and apply into different types of departments (Armstrong, 2014). It complies by
various systems which help companies in taking effective decisions related to setting price for
products or services offered to the user, manage stock levels by keeping an eye on the inventory
at warehouse etc. There is a requirement of management accounting systems within an enterprise
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as it helps in estimating value of various products & services by maintaining a balance between
them. Dyson uses management accounting systems to make products as per the need &
requirement of the user.
Inventory management system: This is a system which ensures that stock levels are
maintained at the warehouse which includes raw materials, finished products, labour etc. It
involves recording of inventory in a unique software like barcode reader which helps the firm to
track down inventory. This system ensures that inventory is ordered from the supplier before the
lead time in order to avoid stock-out. For the purpose of valuation, different types of techniques
are used i.e. LIFO, FIFO, Weighted average method which are defined as follows:
LIFO: Last in, first out is a method which states that the product which is last produced
should be sell first (Azudin and Mansor, 2018).
FIFO: First in, first out is a method which states that the goods which are produced at the
beginning should be sold first.
Weighted average method: It is a method which divides the cost of goods sold available
for sale by the units produced.
Dyson values its stock on the basis of FIFO which states that the products which are
produced at the beginning should be sold first as every new appliance is updated with every
production. In order for the company to get an idea about when the products are consumed by the
customer, this system makes sure that proper tracking is done straight away when the product is
dispatched from the warehouse till it is delivered to the client.
Cost managerial system: It is a technique that is used by companies in order to estimate
the value associated with different products and services offered to the user. This involves two
concepts namely job order that accumulates and assigns cost separately for a job or task whereas
process costing is a method that collects and allocated value for each process. The purpose of
cost accounting system is to carry out the outlay and value it on the basis of different costing
techniques like ABC, Marginal, Absorption etc. The essential requirement of this system in the
Dyson uses cost managerial accounting to assign price for the dryers, heaters, air purifiers etc.
(Bierstaker, Janvrin and Lowe, 2014).
Job order costing system: It is a system which ensures that the goods & services are
produced as per the need and requirement of the client. Since, customer satisfaction plays a
major role in forming business operations so it is essential that the orders placed by the
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customers are manufactured according to their specifications. The major purpose of this system
is to ensure that consumer response as well as their requirements are analysed so that the
products are made accordingly. With the help of job-order costing, Dyson produces its dryers,
vacuum cleaners and other appliance as desired by the user.
Price optimisation system: This is a system which involves setting value for different
goods and services offered by organisations. It comprises of allocating price to a specific product
after assessing the needs & requirements of the customer as they are the ones who will consume
these facilities. The major purpose of this system is to assign a value to the products purchased
by the client. With the help of price optimisation system, Dyson set effective price structure of
their different types of products and analysis of profit margin (Chenhall and Moers, 2015).
Management accounting reporting:
Management accounting reporting: This is defined as a process of reporting where
forecasts are prepared for the future expenses and gains. It also involves provision of financial
data which is used to advise the companies to efficiently utilize the funds allocated for each and
every task. The purpose of management accounting reporting is majorly to produce financial and
non-social reports on the working of an organisation including all expenditure and earnings.
Dyson uses this concept in preparing estimates for manufacturing the air purifiers, dryers, fans
etc. and equally apportioning the funds in all functional departments.
Budget report: It is a type of report which is used to prepare forecasts for the future
expenses and income after analysing the prior expenditure so that accurate funds are allocated
within each functional department. The major purpose of this report is to ensure that proper
finances are assigned for every line item as well as expenditure incurred on a day-to-day basis.
With the help of a budget report, Dyson produces an estimate for the funds required in
manufacturing its dryers, vacuum cleaners etc.
Accounts receivable aging report: Under this report, a record of all the amounts which
have been due from the suppliers and customers are recorded in an efficient way. It ensures that
there are no bad debts by offering cash discount to the suppliers whose amounts are due from a
long time. This also helps in administration of a firm's cash flow position by offering some
incentives to the debtors so that they are able to pay on time. With the help of an aging report,
Dyson examines its trade receivables and calculates a collection period which states the duration
of time a defaulter has to pay off the dues (Cooper, 2017).
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Performance report: It is a type of report which analyses the performance of business
transactions as well as work done by employees in an organisation. For this purpose, various
strategies and performance indicator apply by company to analysis performance of employees.
On the basis of their performance provide monetary rewards which can help to encourage
regarding their work. It is important to prepare by manager of Dyson because it provides detail
information of employees.
Inventory management report: It is a type of report which ensures that adequate levels
of stock are maintained at the warehouse. This confirms availability of raw materials, finished
products etc. with the store manager and accordingly places order for the stock before the lead
time. This report is required by management to check appropriate inventory levels are present at
the warehouse especially during peak season. For this purpose, Dyson prepares inventory
management report to assess the products which are highly consumed by the market participants
and ensures that the raw materials used in manufacturing of those goods are readily available at
the store (Fullerton, Kennedy and Widener, 2014).
Integration of management accounting system and report within organisational process
Type of reporting & Systems Integration with organisational process
Inventory management report and system –
The particular report produced by company
on the basis of segregation of information
which is collected from inventory
management system.
Integration of report & system in organisational
procedure is appreciated from the element that it
helps Dyson to arrange raw materials of
manufacturing products and predications of
desired level of purchase orders.
Performance Report – This report is
prepared to know performance of employees
with the help of different systems. There are
including actual performance of several
sections in Dyson. The appropriate data
collect through cost accounting and price
optimization system.
The combining of this report and system in
procedure is determine from the fact help to get
differentiation in the manufacturing of different
products and also deviations and misalliances are
removed from the contribution of the report.
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Usage of the techniques of cost analysis to prepare income statement by using marginal and
absorption costing
Cost accounting techniques are applied as tools that will provide help to a company like
Dyson. Through these techniques determine the cost of products and calculate profitability in
particular period of time. According to task, revenue of selected company is calculated through
marginal and absorption costing and also interpret them to easily understand.
Marginal Costing – It is defined as costing system that will use to charge variable costs
against the sale revenue. There are including fixed cost and variable cost and written off through
contribution in certain period of time (Heinzelmann, 2017).
Absorption costing – This is a costing method which includes all the expenses that is
related to variable and fixed and charges against gross sales. According to this method direct
charges of production and charged from sales and there are all indirect expenses that are selling
and distribution of charges. It is charged against gross profit in reference to determine net
profitability.
ANNEX (A)
Question 1
Income statement by marginal costing method:
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6

Income statement by absorption costing method
Income statement by Marginal costing method
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Working notes:
1.
Total variable cost per unit 51.5
COGS
opening stock 25750
Production cost 303850
Less: closing stock -149350 180250
2.
Per quarter standard
production 5500
Fixed production cost 75000
Fixed prod. Cost per unit 13.64
Actual cost 80476
absorption -5476
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ANNEX (B)
Question 1
(a) Labour hour: -
Product X = £6000*1 = £6000
Product Y = £8000*2 = £16000
Labour hour = £2,64,000
------------
22,000
= £12 per hour.
Overhead absorption on labour hour: -
X Y
Overhead absorption = 1*12 = 2*12
= 12 = 24
Total Overheads = £6000*12 = £8000*24
= £72,000 = £192,000
(b) Using ABC approach: -
Machine hour per period:
Product X = £6000*4 = £24,000
Product Y = £8000*2 = £16,000
Cost driven rate: -
Production set up = £179,000 = 2893 per set up.
60
Order handling = £30,000 = 416.666 = 417 per order
72
Machine cost = £55,000 = 1.375 per order
40,000
Overhead using ABC approach: -
X
Set up = 15*2983 = 44,745
Order = 12*417 = 5004
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Machine cost = 24000*1.375 = 33,000
Total 82749
Y
Set up = 45*2983 = 134,235
Order = 60*417 = 25,020
Machine cost = 16000*1.375 = 22,000
Total 181,255
Interpretation of above data
As per the above statement prepared on the basis of costing method like absorption and
marginal method. After applied both methods thee are achieving different results for fixed costs.
The amount of net income in reference to Q1 is Pound 721000 and Pound 150000 respectively
for item A and B. While Q2 are -40000 and 186500 regarding to item A and Item B. After the
apply absorption costing method get amount of Q1 is 721650 and 154000 for item A and B and
in the Q2 is -37150 and 185400 for product A and B respectively.
ACTIVITY 2
Planning tools applied for budgetary control:
Budget - It can be described as a financial plan created by executives to carry out all
operations in a suitable way. It is very essential for all companies to analyse their actual situation
and properly determine which type of strategy applied in different situation. In Dyson, manager
develop different types of budgets to predict income as well as expenses. It can help to obtain
long term business goals (Hitomi, 2017).
Budgetary Control – It is a procedure where business activities are controlled by
managers to set performance objectives for potential period of time. Through this process,
control unnecessary payment of monetary resources by Dyson for accomplish their goals and
objectives in set period of time. Through budgetary control, company increase their profitability
as well as productivity to become as leading company in their sector. It is also regarded as most
reliable way of conducting company, as it serves to ensure that all materials are used efficiently.
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Different planning tools – There are discussed various kind of planning tools that are used by
manager of Dyson for the reason of budgetary control. All the planning tools are defined below
in details:
Capital Budget – The particular budget has been produced by manager for understand
about the investments that is made by the company beneficial or not. In Dyson, it is developed
by managers to distinguish among the most and least profitable projects. Through capital budget
top level executives gather information of market activities than provide direction to
subordinates. After analysing of market identify best alternatives that is suitable for company in
effective manner. There are defined advantage and disadvantage of the budget (Ismail and King,
2014).
Advantages Disadvantages
The particular budget is providing different
types of option to the managers of Dyson in
reference to investment to get higher revenues.
It is considering as most expensive method of
budgeting that cannot be afford by every
organisation.
It can help to determine risky alternatives with
their impacts so that non profitable
investments could be ignored by a company.
In short time period, it cannot provide good
results so it is mainly used by companies for
long period of time.
Master Budget – This planning tool defined as an expensive business strategy that
documents regarding to expected sales, manufacture levels, acquisition, coming expenditure,
receive, assets investments and even loads to be non heritable and compensated. In Dyson,
manager produced this budget because it consists of all other financial budget and budgeted
income statement and balance sheet. It is mainly defined as strategic plan that will use in the
future to conduct operation and documented.
Advantages Disadvantages
This budget provide facility to summary of all
types of items like sales, purchase, availability
of cash for purchase raw material in specific
sector.
This budget has lack of specificity because it is
considered as summary of all types of budgets
so easily does not understand which type of
income and expenses indicate to marketing
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department.
The budget has ability to recognise financial
issues and plan ahead. Through this budget
know which department spend more money
beyond its limit.
It is difficult to update due to many collection
and numbers that are consist of budget. Due to
charts and description it is not easily
understand by the everyone.
Production Budget – This budget defined about the summarises of units that will
manufactured by an organisation in set period of time. It is defined as financial plan that will
help to prepare list of the number of units. In Dyson, manager will use this budget to predict how
many units will be manufactured in upcoming time period. It is also used as planning tool for
future manufacture procedure, machine times and scheduling. The manager has to predict about
the future demand and prepare plan for more production.
Advantages Disadvantages
It helps optimize production-related costs by
keeping a particular and standardized level of
production.
Constant recording of fluctuations in
manufacturing systems is a effort-consuming
activity and is also not important because of
some sophisticated software
With the help of this budget estimate units of
production and prepare strategy accordingly
(Nitzl, 2016).
The particular budget based on the assumption
that will be wrong.
ANNEX C
Question 1
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Adoption of management accounting systems to respond financial problems:
. The financial issues are a huge threat for the organizations because due to these
problems companies' other functions are also get effected. This is essential for companies to
resolve these financial issues in less time as much as possible because a company who suffers
from financial issues for long time period can lead to insolvency and more debts. To resolve the
financial issues in less time, there are various kind of accounting systems and techniques. Herein,
it is important to know that which accounting system will be required to solve the issues because
there are a wide range of financial issues (Otley, 2016). Some types of financial issues are
mentioned below which are as follows:
 Increasing operational cost- This can be defined as a kind of issue which is related to
increasing in the total operational cost. Due to these financial issues, companies fail to
control their other types of expenditures and profits start to decrease. The main reason of
increasing this cost is the higher cost of production. It is essential for companies to
overcome this issue as soon as possible otherwise, this is leading a huge financial crises.
Such as the above Dyson company is facing this issue, their cost of operations is too high
which is resulting in a serious financial issue for them.
 Lower sales- It is also a major financial issue which becomes a reason of more loss. In
this financial issue, companies sell start to decrease and because of it, profits also
decreases. They key reason of this financial issue is the lower sell which arises due to
unbalanced pricing structure as well as due to mismanagement of stock. In the absence of
resolving this financial issue, it may become a reason of dissolution of companies. So
companies should try to overcome from this financial in less time as much as possible
(Quattrone, 2016).
Methods to deduct the financial issues- There are various kind of financial issues which
are needed to be resolved in less time. Hence, it is important to find out the exact financial issue
so that plans and strategies can be designed accordingly. Herein, below some methods are
mentioned below which helps in identification of exact financial issues:
 Key performance indicator- This is a type of technique to find the financial issue in
which activities are categorized as per their level of profitability and lose. Like some
activities can be profitable for companies and some cannot be. With the help of this
technique companies can assess the actual financial issue. Such as in the case of Dyson
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company, their financial issue is identified with the help of this technique because it
provide a framework to assess those activities which becomes reason for higher operating
cost. Through KPI identified of increasing operational cost and sort out through
controlling business activities and focus on the cash flow.
 Ratio analysis- This is a kind of technique which is related to the analysis of ratios for the
purpose of finding the financial issue. In this various kind of ratios are included such as
profitability ratio, efficiency ratio etc. (Ross, 2017). The particular tool used for identified
lower sales and sorted through ratio analysis of last year and present year.
Dyson Airdri limited
The company has troubling with the problem
of increasing operational cost.
The particular organisation is facing problem
of lower sales that will influence to
manufacturer level as well as efficiencies.
The particular problem has been identified
through Key performance indicator due to cash
flow is going negative.
This problem has been identified through Ratio
analysis because it will provide different
situation in different years of sales.
To sort of this financial problem company has
been applied cost accounting system to easily
search out different types of deviations towards
actual operational cost and make controlling
procedure.
The particular problem has been sort out
through price optimization system to set
effective price structure and reviews from
people in reference to price of their products.
Application of planning tools to respond financial issue along with attainment sustainable
success:
There are several kind of planning tools which is utilised by the Dyson that named are
master budget, production and capital budget. These planning tools have their large effort in the
procedure of budgetary control (Siverbo, 2014). With the of these planning tools provide reply to
financial problem. Through master budget, management of Dyson company focus on the
financial issues of different departments because with the help of this budget know about
summary of all departments such as sales, purchase and cash budget. Production budget utilised
by Dyson in order to estimate units of appliances and determine amount of production units in
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upcoming period of time. The company also used capital budget in order to forecast of further
investment to generate profit in effective manner. Also, it will help to attain sustainable success
as help to achieve sufficient amount of profit margin.
CONCLUSION
It has been concluded that the particular report defines that in present time management
accounting work as life line for all the organisations because it provides guidance in different
situations. There are identified broad contribution of management accounting to develop
business at big level and achieve success as well as improve relation among the internal
divisions. It is possible due to applied different types of systems to get the varied information
which improves the understanding as well as outcomes to get reliable improvements. There are
producing different types of management accounting reports that will help to provide the
information to internal stakeholders as well as directors which improves decision making
process. There are applied different types of planning tools such as master, production and
capital budget. Every have their own contribution in budgetary control and allows the financial
issues and increase strength. There are applied different management tools and systems such as
KPI and ratio analysis.
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