Management Accounting - Airdri Assignment

Management accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Different type of Management Accounting system................................................................1
P2. Different types of management accounting reports...............................................................3
M1 Benefit of management accounting system and their application.........................................4
D1. Importance of management accounting system and report...................................................5
P3 Appropriate techniques of cost analysis to prepare an income statement..............................5
M2. Range of management accounting techniques.....................................................................8
D2. Analysis of data collected from income statement...............................................................8
TASK 2............................................................................................................................................8
P4 Uses of planning tool in management accounting..................................................................8
M3 Analyse of different planning tool and its application for forecasting budgets.................10
P5 Management accounting is used to address financial problems...........................................11
M4 Importance of planning tool to cop with financial problems..............................................12
D3: Evaluation of planning tools for responding to financial issues ........................................12
CONCLUSION..............................................................................................................................12
REFERENCES .............................................................................................................................13

INTRODUCTION
Management accounting refers to the process of evaluating business costs and operations
in order to prepare the internal financial report and accounts which helps managers to make
decisions. This assist management of organisation to perform all the functions like planning,
organising, staffing, directing and controlling. It assist management to deal with forecast about
futures. To better understand this concept Airdri, UK is being selected for this report. The
company deals in hand drying products (Amidu, Effah and Abor, 2011). There are different
types of management accounting systems which is useful for companies is explained in this
report. The management accounting reports are being prepared which is also explained in this
report. With the help of various costing techniques the cost is calculated and income statement is
also being prepared. As various types of planing tool is being used for budgetary control, so
benefits and limitation for these tools is also discussed in this report. The management
accounting is also used by companies to respond financial problems.
TASK 1
P1 Different type of Management Accounting system.
Management accounting is related to the concept of recording, analysing, measuring that
help to improve the internal performance of company. In present era, each and every company
wants to record the actual performance of their workforce and business operation in order to
increase profitability. In general, managerial accounting is is defined as the utmost crucial
method of presenting financial data in most appropriate manner that give company necessary
direction to manage and operate different business operation. Management utilise systems to
form effective policy that are further used by manager of organising to perform everyday
function and business activity (Carlsson-Wall, Kraus and Lind, 2015).
In most common manner management accounting is considered to be one of the most
important branch of accounting that deliver the crucial knowledge to the top manager of
company so that goal can be achieved in systematic manner. There are different kind of
accounting system that help manager of Airdri to make proper plan that support to achieve goals.
These system have various advantages to Airdri, some of these discussed below:
Cost Accounting system: Each and every company involved cost to run their business
activities. This system help to record, categories, measure overall cost incurred in different
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project operating in company. With the help of this cost accounting system manager of company
are able to control the cost that have been made within the production process. So In Airdri
manager of company uses cost accounting system to control the additional cost involved in
making of Hand dryer. Cost accounting system uses various costing method that are useful in
Airdri such as, standard, normal and actual costing (Fisher and Krumwiede, 2012).
Inventory management System: This system is related to making of systematic record
of inventory company have at a particular time. It is defined as one of the effectual supervision
method of all non-capitalised stock productions. With the help of this system company are able
to maintain their supply chain, that support to analyse the flow of goods from manufacture to
supplier. Inventory management system help manager of Airdri to record the raw material used
in production, goods in transit and finished hand dryer laying in the warehouse. This help them
to accept the demand of people and make sales accordingly. There are different approaches used
in this system by manager of Airdri such as, FIFO, JIT LIFO etc. LIFO is defined as goods that
are produced at last will be available first for sales. So manager of Airdri focus to sale those hand
dryer that are produced recently with latest technology so that customer will be attracted.
Price optimisation System: This system is related to control price of product offer for
sales. As every customer wants best quality of good at cheap rate. It has been recovered that
optimisation is chiefly utilized in the area of evaluation that used to give precious applications
affiliated with prices. Manager of Airdri uses this system to fix the best price of hand dryer so
that more number of customer are attracted to buy their product. On the same manager also
check that expenses must be recovered from the sales amount. With the help of Price
optimisation system manager of Airdri are able to increase the profitability and increase the sales
volume (Granlund, 2011). The main requirement of this system about identification of impact of
change on the behaviour of consumer due to the fluctuation of price
Job costing system: This system is basically related to analysing, recording and
measuring the overall cost involved that company incur on different jobs or individual those are
working within Airdri. Company use to determine the total amount spent on their worker those
are involved in production of luxury hand dryer. With the help of Job costing system they are
able to control the actual cost by using different costing system such as product costing,process
and standard costing that help them to improve the profit of Airdri.
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P2. Different types of management accounting reports
Accounting reports are important for every organisation. These reports are prepared at the
end of every quarter in order to provide a holistic view to the management about business
finance. The reports are utilised for planning, regulating, decision making and measurement of
performance. There is no specific time for preparing these reports, reports are prepared
throughout the year as many critical decisions depend on reliability and authenticity of these
reports. Reporting is an important document which contains the necessary financial and non
financial information which are related with the business organisation. The managers of Airdri
are obliged to collect important information and data regarding to business finance in order to
take important strategic decision in organisation (Johnson, 2013). The reports are aid to
managers of Airdri to attract investors and get investment from investors. As authenticity of
these reports are considered benefit for organisations which allow managers to make decisions
by evaluating these reports. It is very important to prepare these reports in order to be
competitive in this dynamic business environment.
There are different types of accounting reporting method that can be beneficial for
department to make record of necessary information regarding the company's overall data. These
are discussed as below:
Performance report:
Performance management report is considered as one of the important activity which is
related with the project communication management. These reports are prepared to monitor and
review performance of company and employees as well. The reports shows that how well
company and employees are performing and achieving their goals or not. There are various
departments in organisation so department performance reports are also prepared by
management. This department performance report shows the performance according to
department. Performance related managerial accounting reports also provide insight working of
Airdri. As role of this report is crucial to keep an adequate and authentic measure of company's
strategy toward their goals (JOSHI and et. al., 2011).
Cost managerial accounting reports:
The managerial accounting calculate the cost of articles which are produced. In this
report the Airdri can include all raw material cost, overhead, labour and any other cost which
incurred during time of manufacturing of products. This cost report summarise all information
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related to cost and than present it to management. This helps management to identify cost price
of products in respect of sells prices of that product. Profit margins are also estimated and
monitored through this report. As waste inventory, hourly labour cost and overhead costs are also
includes in this managerial accounting report. This offers an accurate understanding of all
expenses that are required for proper utilisation of resources among all departments (Klychova,
Faskhutdinova and Sadrieva, 2014).
Account receivable aging report:
This ageing report basically provide the information regarding debtors of business.
Account receivable aging report is important for those business which more rely on extending
the credit. As the report helps manager to identify the defaulters by breaking down remaining
balance of their clients into specific time periods. If there are various defaulters then the Airdri
needs to transform their credit policy. As regular cash flow is also very important for business to
perform the business operations effectively. The reports assists management to write off their
bad debts as soon as possible because more bad debts can leads to negative cash flow for
business.
Budget Reports:
Budget are prepared to estimate the income and expenses for a particular year. The
budget reports are those reports which is helpful in assessing performance. As each and every
company creates an overall budget in order to understand the business schemes. Budget is
prepared on basis of previous year budgets. The Airdri can achieve their goals and objectives by
staying in budgeted amount. This reports can direct manager to purpose effective staff
incentives, cost cutting and negotiation term with suppliers and vendors. Therefore budget report
is very helpful for any kind of business (Mistry, Sharma and Low, 2014).
M1 Benefit of management accounting system In general, and their application.
Management accounting have different benefits that support company to attain the future
goals and increase the productivity and profitability. In Airdri there are various advantage of
these system that help to manage and operate different business operation. These are discussed
below:
Types of accounting system Benefits
Cost accounting system  This determine the costs in assorted condition through
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with use of definite tools and method of costing.
 To ascertain marketing and selling prices in various
condition.
Inventory management
system
 It will help to improve the quality of stock orders to
make proper stock level in Airdri.
 With the help of this system manager are able to
maintain more organised storehouse.
Price optimisation  It is used to examine overall perception of customers
related to price of Hand dryer (Monroy, Nasiri and
Peláez, 2014).
 Give more low-priced product to respective people
according to the demands.
Job costing system  Availability aid customer and other investors to
recognise more about company financial status and
strength.
 Help to control the additional cost incurred on
individual worker.
D1. Importance of management accounting system and report.
In business world, it has been discovered that accounting system and systematic reports
are very crucial. As one help to manage different operation and control relevant cost and other
support to provide necessary information about the financial status and position of Airdri.
Different system used by company help manager of Airdri to control the overall cost involved in
production, fix the best price of product that will increase sales etc. Company also uses various
kind of reports such as performance report to record and measure the overall performance of
worker, inventory report provide valuable information to the total stock available within
company etc.
P3 Appropriate techniques of cost analysis to prepare an income statement.
In current era, everything have some worth that is need to be paid by individual who is
willing to buy that product. Cost is defined as the amount paid by person in order to buy a
specific good. In companies cost is the amount that is involved in production process or other
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related activities. Such as in case of manufacture, manager use to gathered essential amount of
raw material or other important need from respective parties. Thus it support in effective
functioning of different business operation performed within company. In Airdri, cost is taken
into consideration that help to determine the overall cost that will be required in order to expand
business and run production function. So that Airdri will be able to produce more hand dryer
with superior quality which support to attract more customer in future. It is observed that if
expenses or cost are controlled than profit of company will automatically increased. There are
respective kind of costing approaches that can be taken into report for the intention of evaluating
net profit for the company (Moser, 2012). Some of them are discussed underneath:
Absorption costing: This costing system is used to calculate the all types of cost that are
involved in production of product and services offered by company. This absorption costing also
known as full costing method involves both variable and fixed cost. In order to determine the net
profit for a particular period manager of Airdri uses this system by considering both variable and
fixed cost. As compared to marginal costing absorption costing seems to be more effective
approach as in variable method only variable cost are taken into consideration. So because of
accurate and more reliable result absorption costing method must be used by management of
Airdri to make effective future decision.
Marginal costing: This method is related to determine the additional cost involved in
producing an extra unit of output. This method involves only variable factors in order to
calculate the net profit of Airdri during a year (Öker and Özyapici, 2013). It has been deciding
that variable cost used to consider essential portion of marginal cost, that are affiliated with
overhead expenses, material and direct labour etc. This appear to be much effectual approach to
make better decision for future.
Calculation of Income Statement for March 2018 based on Marginal Costing
Particulars Product X Product Total
Production units (A) 5000 3500 8500
Sales units (B) 4600 3200 7800
____________________________
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Sales Revenue(£) 828000 480000 1308000
Less: Variable costs of goods sold:
Direct Material 138000 76800 214800
Direct Labour 165600 76800 242400
Variable Production Overheads 110400 51200 161600
_____________________________
Gross Contribution Margin 414000 275200 673600
Less: Variable Selling Overheads 9200 6400 15600
_____________________________
Net Contribution Margin 404800 268800 673600
Less: Fixed Production Overheads - - 210,000
Fixed
Administration Overheads - - 54,000
_____________________________
Net Income before Tax 409600
Note 1: In marginal Costing, we can't take fixed cost for individual product, therefore we
have to take it for whole company.
Note 2: In absorption costing, we should absorb fixed cost for individual product as per
recovery rate per unit of product. But in this question, we have not given recovery rate for fixed
administration overheads, hence, we should take it as a whole not for individual product.
Calculation of Income Statement for March 2018 based on Absorption Costing
Particulars Product X Product Y Total
Production units (A) 5000 3500 8500
Sales units (B) 4600 3200 7800
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Sales Revenue(£) 828000 480000 1308000
Less: costs of goods sold:
Direct Material 138000 76800 214800
Direct Labour 165600 76800 242400
Variable Production Overheads 110400 51200 161600
Fixed Production Overheads 300000 140000 440000
Variable Selling Overheads 9200 6400 15600
____________________________
Total cost 723200 351200 1074400
Gross Profit - - 233600
Less: Fixed Administration Overheads - - 54000
_____________________________
Net Income Before Tax 179600
M2. Range of management accounting techniques
Management accounting tools and techniques are used to make more accurate and
effective decision. In Airdri Manager applies different types of accounting tools and method that
help in formation to produce more appropriate financial reporting documents at the end of
financial year. Some of these are discussed below:
Historical cost: This management tool help to accountant of company to record the cost
of assets according to their nominal values rather than their original cost. In Airdri Manager
make sure that all of there assets much be recorded on balance sheet according to current
nominal values.
Marginal costing tool: This is consider to be one of the most effective and best
techniques used by companies in order to calculate the net profit of company. It help to
determine the actual additional cost incurred on producing an additional unit of output. It is one
of the best method for Airdri because charging cost as variable unit will an additional benefit for
company (Schaltegger and Csutora, 2012).
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D2. Analysis of data collected from income statement.
From the above calculated net profit for product X and Y through marginal and
absorption costing. It is observed that net profit before tax for both product with the help of
marginal costing is 409600. Similarly with the help of absorption costing the net profit for
product X and Y is 179600. So marginal costing method is more appropriate to determine the net
profit for year.
TASK 2
P4 Uses of planning tool in management accounting.
A Budget is an estimation of revenue and expenses over a specified future period of time,
it is complied and re-evaluated on a periodic basis. Planning is one of the main tools of
management to decide their future goals. It is very important to understand difference between
various type of planning made by management in this regard:
Strategic Planning: It is concerned preparation of long term action plans to attain the
objectives of organisation by considering the changes at horizon
Budgetary Planning:It is mainly concerned with preparation of short term to medium term
plan of the organisation. As per the strategic plan already set,the budgetary planing is
carried out.
Operational Planning: It is concerned with short term or day to day planing process. In
operational planning process ,each step is an interim step towards achieving the budget.
There are various type of budget are as follows:
 Sales Budget:It is an estimation of sales in units as well as estimation of earning form
sale of these units (Tsai and et. al., 2013). For developing sales budget, management
carefully analyse economic condition, market competition, production capacity and sales
expenses.
 Production Budget: It calculate the estimated number of units to be manufactured in the
budgeted period by adding estimated number of closing inventory of finished goods and
deducting opening inventory of finished goods in the budgeted units of sales.
 Purchase Budget:It contain the amount of inventory that a company must purchase
during the period of budget by the help of estimated number of closing inventory of raw
material and opening inventory of raw material.
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 Direct Labour Budget: It is prepared to know the estimated time of labour to produce
the desired units. To prepare the direct labour budget,the direct labour time per unit is
multiply with number of units to be produced(from production budget).
Budget is very important planning tool and organisation consider very seriously about
their budgeting process. Planning tools used by management for the above types of budgets are
as follows:
Forecasting tool :
Forecasting means prediction about the future. For forecasting making trick should be
right or close enough. So manager of Airdri does proper forecasting about each factor that may
be reason to reduce the productivity of company.
 Advantages: Forecasting provides a basis for future plan preparation and it also
improves the quality of managerial personnel for future provisions.
 Disadvantages: It is nearly impossible to accurately forecast the future. If a forecasted
data is wrong then it will provide wrong output and results which are based on that
wrong data.
Scenarios Tool:
For business uses, short term forecasting is used for creating budgets and anticipating
expenses. But for long term forecasting, both quantitative and qualitative data is used based on
expert opinions and insights. Often, organisation create a number of long term forecasts based on
“best case” and “worst case” scenarios (Scenario planning, 2018).
 Advantages: In early stages, recognition of scenarios for decision maker are better if it
actually unfolds and the source of disagreement that occur are understand better by the
managers
 Disadvantage: Scenarios planning is not something that happens in a minute or a day, it
really takes time, commitment and research by the management. If quality of data and
scenario team is not good, then scenario tool is not effective
Contingency tool:
It describes what will happen in a possible but not expected situation .Contingency plan
are usually designed to handle emergency situations.
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 Advantages: If we are planning for what might can happen then we automatically
prepared ourself from non expectation and make our business in best state of operations
possible, depending on the severity of the disaster.
 Disadvantage: It suffers a problem of inadequate literature. It is very complex in practice
and no methodology and standard is present for implementing contingency.
M3 Analyse of different planning tool and its application for forecasting budgets.
In order to do proper planning for future manager of company uses different kind of
planning tool. Such as forecasting tool that use to examine the actual cost and expenses that is
incurred on production process. Contingency tools are taken into account for controlling business
risks those are arises in the department. Company also makes budgets in order to maintain the
profit during an accounting year. This is all done because Airdri wants to earn huge profit and
maintain proper fund to deal with any financial problems.
P5 Management accounting is used to address financial problems.
Financial problem are faced by each type of business organisation either small ion size or
large. These problem have direct or indirect influence on business operation and reduces the
profitability and performance of company (Ward, 2012). There are number of financial problem
such as, uneven expenses, lack of money management, problem related to stock management,
more expenses that earning etc. So, In all of the business entity, this can be merely observed that
the management applies diverse management accounting techniques that support to address or
overcome entire financial problems that would be come forth in the firm. It is observed that
management of Airdri applies different accounting system such as price optimisation, stock
management system etc. that help to improve the revenue earning which further support to deal
with different financial issues that may arise in future.
To understand the importance of management accounting system in order to overcome
the different financial issues are discussed below.
Case 1: In Airdri, is has been observed that there has been a serious issue that is related
to more expenses than earning. It was observed that company is spending a huge amount in order
to produce high quality luxury hand dryer. But at the same time the sales are not so good for
Airdri. This develop a major issue in company that either they have to stop doing production or
think or some other techniques to manufacture hand dryer.
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Case 2: In second case, Sollatek produces different electrical appliances. It is facing a
serious issue that production department are not able to control the stock level or there is vast
misuse of raw material. This problem need to be resolved otherwise the company will face
shortage of raw material and sales volume will also decreased. This result to diminish the overall
profit of company.
To resolve above discussed financial problem management of both companies apply
different management accounting system that are discussed and compared with each other:
Airdri Sollatek
 In order to resolve the above mention
financial issue management of Airdri
implement the concept of cost
accounting system (Wickramasinghe
and Alawattage, 2012).
 With the help of cost system manager
are will be able to determine the reason
or more expenses.
 Further they will be able to control cost
by maintaining proper budgets and
making record of each expenses. This
will support to increase profit.
 On the other side manager of company
wants to maintain enough raw material
and finished goods that will support to
maintain flow of inventory. They apply
Just in time technique.
 With the help of JIT, management will
make sure that whenever there is
requirement of raw material supplier
will directly receive the message and
deliver the raw material to avoid in
production.
 This method will be helpful in reducing
the time of manager and inventory cost,
so profit can be maximised.
M4 Importance of planning tool to cop with financial problems.
In business world, it has been determined that planning tool plays an important role that
support to deal with different financial problem. There are different accounting affiliated issues
which will be in effect effect various section. It seems to be important for future development
and profit earning that are foreseen to be use by Airdri. Difficulty must be related to future
calculated budgets and approaching issues.
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D3: Evaluation of planning tools for responding to financial issues
In present time, it has been discovered that organisation faces different kind of financial
problem that may hinder the overall performance. So management of Airdri to control these
financial pro0blem with the help of different issues. Such as contingency tool is supportable to
control the unexpected risk that may affect the production process of Airdri. These problem can
be identified and resolved with the help of financial governance that aid to create policies about
how will the organisation is going to conduct its business activity (Windolph and Moeller,
2012).
CONCLUSION
In the conclusion it can be said that management accounting plays and important role in
organisation in order to make effective decision in business. There are different types of
management accounting system which is beneficial for organisation. As there are different
management accounting reports which are prepared by business in order to know insight of
business. Planning tools are also there that is applied by company for budgetary control. As there
are different financial issues which is faced by organisations, so they are adapting management
accounting system in order to respond these financial problems.
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REFERENCES
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Online
Scenario planning. 2018.[Online]. Available through: <https://papers.ssrn.com/sol3/papers.cfm?
abstract_id=1736110>.
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