Management Accounting Assignment PDF - Airdri

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and its requirement of different types of management accounting
system..........................................................................................................................................1
P2 Different methodologies employed used in management accounting reporting...................2
M1 Benefits of management accounting system........................................................................4
D1 Management accounting system and accounting reports are integrated within
organisational processes..............................................................................................................4
TASK 2............................................................................................................................................4
P3 Calculations of costs using appropriate techniques to prepare income statement.................4
M2 Different techniques of management accounting system ....................................................7
D2 Interpret data for a range of business activities.....................................................................8
TASK 3............................................................................................................................................8
P4 Advantage and disadvantage of different types of planning tools used for budgetary control
.....................................................................................................................................................8
M3 Uses of different planning tools and their application for preparing and forecasting budget
...................................................................................................................................................10
TASK 4..........................................................................................................................................10
P5 Comparison of entity due to adapting management accounting systems to respond to
financial problems.....................................................................................................................10
Comparison between Airdri Financial and Brightstar..............................................................11
M4 Responding to financial problems, management accounting can lead organisations to
sustainable success....................................................................................................................12
D3 Evaluate planning tools for accounting period to respond financial problems appropriately
...................................................................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Management accounting is the process of accounting which is used to calculate the cost
of organisation (Bennett and James, 2017). It is the combination of management and accounting
that help to analysing the business cost and operations to prepare internal financial reports,
records and account that help to manage the business activities. Accounting is technique which
help to give a correct calculation of accounting transaction. The main purpose of this report is to
make understand how to create and uses accounting information that help to make decision
independently. To understand this, Alpha financial market consulting has been taken that is
medium size organisation. It serves clients operating in different sectors such as retail,
manufacturing, hospitality and construction that provides important information for making
business decision. The company provide suggestions to small manufacturing companies such as
Airdri, J. Rotherham and other companies. This present report will be covered different topics
such as planning tools and how it helps company to resolve financial problems. For completing
the report management accounting and its system also required to present. Moreover, report
discusses about different types of methods which is used to for management accounting
reporting that can help to maximize the profits.
TASK 1
P1 Management accounting and its requirement of different types of management accounting
system
Management accounting is the process of different activities where includes preparation
and recording of financial and accounting transaction. Systems are used by managers to manage
the accounts and make business decision. It helps management to keep proper records of
accounts and make effective reports with the help to system. It gives a systematically view of
transaction and help to operate business successfully. This is adopted by business entity to assess
the actual performance and growth of business organisation. It is required to make decision and
maximize the profitability by focusing on transaction (Christ, 2014). In Airdri limited managers
uses different types of management accounting system that is defined as:
Inventory management system: This is most important management accounting system
which is used by firm to manage the inventory within organisation. It is mostly used in
manufacturing company to keep proper records of inventory and maintain the placing order of
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raw material and finished goods. This accounting system assist to keep records of actual and real
time movement and different kind of inventory. Airdri company is using this system to keep
records of inventory and maintain the productivity within organisation. It is beneficial for
manufacturing company to adopt this inventory system because it will help to manage the
inventory and also help to place next order of goods and services (Fullerton, Kennedy and
Widener, 2014) .
Cost accounting system: This means an accounting system that provide guidance to
business organisation for focusing on cost and increasing the profitability. It involves a
systematic set of activities such as understanding, entering, analysing, classifying and
summarizing the cost of products and services. The main object is to use the cost in proper
manner and enhance the cost efficiency that leads to increase the production. It helps to compare
between actual and budgeted cost with the help to this system. It is required to keep the records
of cost and use it effectively. In Airdri company managers uses this system and keep records of
income and expenses within industry. It is used by all organisation to use cost and increase the
profitability.
Price optimisation system: Price is the required in all organisation that help to maintain
the productivity or profitability. It creates a relationship among product and services by
providing at reasonable cost. Every organisation has aim to use optimize the prices of products
and services. This system helps to analysis and set the prices of goods and services. The manager
of Airdri limited company uses this system to optimise the price that will help to maintain the
profits. The main object is to reduce the waste and optimize the prices for making decision.
P2 Different methodologies employed used in management accounting reporting
Management accounting reports is a process of provide reliable and financial information
in detailed way. In every organisation, the management accounting reports are produced by the
lower level manager to provide detailed information of company to the higher management. The
main purpose to prepare management accounting reports is to present an overall view of the
management practices, policies and procedures on the basis of several organisational level for a
specific period of time. Airdri limited prepares these types of reports in order to provide
information of varying nature to the top management (Hall, 2016). There are presented some
reports which are prepared by an organisation -
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Budget Report – Such type of report is produced by manager to compare position of the
company with actual performance. It is considering as an internal report that can produce to
analysis whole departments of company for preparing effective budget report. In Airdri financial
market consultancy generated budget report to know strength and weakness and find out reason
of weakness. With the help of this budget report a manager can estimate income and expenses
which are necessary for the organisation. It is advantageous for the Airdri Limited because it can
help to managers to make suitable financial decision for the improvement of an organisation.
Performance Report - Most of the companies prepare this type report because it can be
used to monitor the performance of a company. In Airdri linited such type report is generated by
the managers to evaluate the efficiency of each employee regarding to their task and how they
can efficiently work in critical situation. The particular report also followed by the management
to provide benefits like bonus and incentive to the workers as per the performance. It can help to
assess the image and status in market. It is beneficial for a company because it can guide to
whole entity is performing well or not (Lavia López and Hiebl, 2014).
Accounts Receivable Report – This particular report presents the summary of the
accounts receivables. The report can produce by the manager to know about their clients who can
take stock on credit. A business can collect all payments from customers and unused credit
memos which are not collected yet. To improve sales volume the report generated by Airdri
limited to provide services and provide benefits to create systematic list of clients.
Inventory Management Report -
These types of reports can help to track the record of inventory at manufacturing process
and know detailed information. The particular report provide how much material can use at
different level and try to reduce wastage and use in appropriate manner. It is advantageous for
management in order to analysis the status of stock whether it is in transit or in warehouse. In the
Airdri limited can use particular report to determine about the stock and manufacturing process
to know proper utilisation of resources.
M1 Benefits of management accounting system
Management accounting system is useful for all organisation as it helps to make effective
business decision within organisation. Systems are the rules and regulation that bounds company
to follow and run a business successfully (Maas, Schaltegger and Crutzen, 2016). It is beneficial
for firms such as it helps to enhance the operational activities by managing accounts. The
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accountants of different organisation understand the needs of accounting system and apply in
their organisation for maximize the profits. In Airdri Limited company managers get benefits of
these system such as inventory management system help to track the inventory level and place
next order accordingly. Cost accounting system give a benefit of maintaining the cost by
focusing on cost and expenses that help to make further decision. Moreover, price optimisation
system helps to set the prices of products and services that increases profit margin. These
systems are beneficial that help to achieve goals and objectives in organisation and increase the
profitability. The manager of Airdri can use management accounting system that will help to
make financial decision by increasing the productivity.
D1 Management accounting system and accounting reports are integrated within organisational
processes
Management accounting system and reports are integrated with each other such as it
helps to prepare the reports and make business decision. Without using management accounting
system accountant cannot prepare accounting reports. Accounting system help to face the
problems which is arising within organisation. Both are integrated such as manager of Airdri
limited uses inventory management system and prepares inventory reports that gives full
information about raw material and products. Cost accounting system help to prepares budget
and performance reports that help to know about income and expenses. Moreover, managers
prepare account receivable reports with the help of price optimisation system that help to
maintain the information collectively (Malina, 2018).
TASK 2
P3 Calculations of costs using appropriate techniques to prepare income statement
Marginal Costing: It is a costing technique which is analysed as charge of production cost units
and fixed costs are not selected to evaluation of total production cost. The particular
technique mainly focusses on the several items like office and administrative expenditure,
manufacturing expenses as well as selling & distribution overhead to compute production
cost. Airdri financial market consultancy follow particular technique in reference to
calculate extra unit of production (Messner, 2016).
Absorption Costing: It is also another method of costing technique which can use to calculate
net profit of the company. The particular method uses for calculate indirect expenses and
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direct costs. At the time of calculation variable and fixed cost are related to producing unit
and it will depend on the manufacturing company. For instance, Airdri financial market
consultancy is consulting company which can follow the particular technique in order to
analysis appropriate resources.
May June
Selling Price 50 15000 25000
Less: Marginal Costs
Direct materials per
unit 8 2400 3040
Direct labour per unit 5 2500 1900
Variable production
overheads per unit 3 1500 1140
Total 6400 6080
Less: Opening
inventory - 3200
Add: Closing Inventory 3200 1280
Gross Profit 11800 17000
Less: Fixed Costs
Fixed selling expenses 4000 4000
Fixed admin expenses 2000 2000
Fixed Production cost 4000 4000
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Less: Sales commission 750 1250
Net Profit 1050 5750
Absorption Costing:
May June
Selling Price 50 15000 25000
Less: Absorption Costs
Direct materials per
unit 8 4000 3040
Direct labour per unit 5 2500 1900
Variable production
overheads per unit 3 1500 1140
Fixed Production cost 10 3000 3800
Total 11000 9880
Less: Opening
inventory - 5200
Add: Closing Inventory 5200 2080
Gross Profit 9200 12000
Less: Fixed Costs
Fixed selling expenses 4000 4000
Fixed admin expenses 2000 2000
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Less: Sales commission 750 1250
Net Profit 24504750
M2 Different techniques of management accounting system
Management accounting techniques are helpful for business organisation as it helps in
analysing, classifying, defining and controlling the business transaction. Accounting techniques
help to understand the business problems and find the solution by using accounting system. The
managers of Airdri limited company use different techniques that help to prepare the financial
reports that gives fair view of business activities. It also helps to maintain the business function
and operating activities in order to maximize the productivity. Therefore, all organisation should
focus on accounting techniques that will help to prepare the reports and maintain the profitability
(Modell, 2014).
D2 Interpret data for a range of business activities
At the time of calculation be marginal costing method it has resulted in 1050 for May and
5750 for June. After the apply technique of absorption costing has resulted profit of 2450 in May
and for 4750 in June. The reason behind the differences is fixed cost and closing inventory
because in marginal costing there are not considered and in absorption technique both of them
are considered for the purpose of calculating profits.
TASK 3
P4 Advantage and disadvantage of different types of planning tools used for budgetary control
Budget – It is mainly based on estimation of income and expenditure for a particular
accounting period of time. They are identifying expenditure of a company which is based on
different periods like monthly, quarterly and yearly. The budge mainly produced by every
department after analysing all activities then predict amount of income and expenses. It is format
which specifies financial gain and expenses on future evaluation or upcoming period of time. It
predication of financial position as well as result for one or more period of time. The main
purpose to use to provision and performance measuring (Nielsen, Mitchell and Nørreklit, 2015).
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Cash Budget
A cash budget is a calculation of the net cash inflow and cash outflow for a business over
a particular period of time. This budget define that the organisation has sufficient cash to direct
and most of the organisation can apply the cash budget to predict the production as well as sales.
In Airdri limited planning about the cash receipts and payments for accounting period of time.
There are in cash flow and outflow consist of expenses paid, accumulated revenues and
payments.
Advantage
 There are identified major strength of the particular budget that it will provide all detailed
information of cash inflow and outflow of specific time. It can help to set all reserves as per the requirement and help in future to face of any type
uncertainty and ignore the chance of productivity.
Disadvantage
 There are considering main weakness that it will provide information of cash position of
a company so it can not help to analysis of financial position of business because it can
not provide bank regarding information (Zhang, Uchida and Bu, 2013).
 This budget is manipulative sometimes as responsible manager can make conditional
mistake in amounts to improve expenses due to ignore tax expenses.
Operating Budget
Operating budget can calculate all income and expenses which is related to sales in a
given period. These type of budget mainly are prepared for short period of time. The operational
budget are categorised into annually basis which is based on functional strategy and cost
accounts. This budget performs business's expenses, costs and forecasted income which is
depended on annually performance of Airdri limited.
Advantage Budget is predetermination of goal and objectives that can be acquired in future. The
particular budget provide actual performance as well as strength & weakness of
company.
Disadvantage
 It takes more time to prepare budget and easily can not conduct their operational
activities so as a result it can reduce overall productivity and performance.
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 In order to prepare budget a manager can missed the other major functions that leads to
management within Airdri limited company (Cazier, Tian and Wilson, 2015).
Master Budget
The selected budget can collect of all lower budgets which can generate by a business for
several areas where includes financial statements, cash forecast and a financial plan. Master
budget mainly based on expensive business strategy which is expected for future sales, stages of
manufacturing, further expenses consisted, capital investments and loans to accomplish and
rapid. In order to the master budget analysis all other budgets as well as a budgeted financial
statement and balance sheet.
Advantage
 It is focused on the allotment of the expenditure and liabilities. The particular budget can help to coordinate of each department in effective manner.
Disadvantage
 It is considering as time consuming budget and prepare of the master budget need to
experts who can analysis of business activities closely.
 Many times the manager of Airdri limited company have not appropriate skills to
understand master budget. Such as some purchase of company perform the amount of
dollar is missed by manager to prepare accordingly (Sánchez-Matamoros, Araujo Pinzon
and Alvarez-Dardet Espejo, 2014).
M3 Uses of different planning tools and their application for preparing and forecasting budget
Planning tools are useful for organisation as it helps to prepare a budget and forecasting.
It helps to make effective business plan that is used to set the transaction and make business
decision. Organisation should use planning tools in order to make plans and forecasting within
organisation. Such as manager of Airdri limited is using operating, master and cash budget that
help to formulate budget and forecasting. All these tool guides managers to analyse the
requirement and prepare the budget that will help to make future plans within organisation.
Moreover, managers can make effective business decision by introducing planning tools.
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TASK 4
P5 Comparison of entity due to adapting management accounting systems to respond to financial
problems
In present time, organisations are facing different types of financial problems that reduces
its profits and production level. Finance is first need of business entity that help to run a business
successfully and maximize the profitability. If financial position of an organisation is good then
it look for expanding the business in different market place. Whereas if financial position of a
company is not good then organisation need to take correct action in order to make profits within
organisation. Management accounting system are useful for organisation as it helps to solve the
financial problems which is facing by any organisation. Airdri financial company uses
management accounting system that help to overcome the problems. There are defined financial
problems -
Sudden expenses: Any organisation can face financial problems if uncertain expenses
are occurred in organisation. This is facing by Airdri limited due to suddenly expenses are
incurred which is not expected. In this situation, managers face loss of money problems. Sudden
expenses such as debt amount, repairing of machine and other losses.
Less payments by clients: This means sometimes customers buys goods and services on
credit and at the time of making payment they pay less amount. In this situation, organisation
faces financial losses. As result loss of money and less productivity. If can affect the operational
activity of Airdri company such as low profit margin (Jacobs, 2012).
The managers of Airdri company use different types of techniques to address the
financial issues. These techniques are defined as:
Benchmarking: This is a technique which is used to compare the policies, rules and
performance of an organisation with competitor's company. It is effective tools which help to
identify the financial problems which is facing by an organisation and use techniques to solve the
financial issues. Airdri company can use this tool to address the financial problem of sudden
expenses and improve the performance by comparing with other organisation.
KPI: This means key performance indicator which is used to solve the financial
problems which is arises within organisation. The main aim of this technique is to analysis the
performance of organisation as well as employees and try to improve it. It involves financial and
non financial indicators to record the employee's performance and improves the performance. It
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is used to provide financial and non financial motivation to employees that help to increase the
productivity. Such as managers of Airdri company can use KPI technique in order to solve
problems of late payment by clients.
Comparison between Airdri Financial and
BrightstarAirdri limited company
Cambridge manufacturing
Airdri financial is facing financial problems
that is less payment from client that reduces its
profits. Due this problem it is facing low
productivity and profitability.
This is facing financial problems because
expenses are arises within organisation
suddenly. Due to this, it is facing lack of
money and low productivity.
For facing this financial problems the manager
of Airdri financial should use cost accounting
system that will help to maintain the cost and
also will help to handle the financial problems.
By adopting this system accountant will keep
proper records of credits and will collect full
payment on time that will processed to
addressing the problems. Moreover, by using
this system manager can focus on accounting
transaction such as income and expenses which
arises within organisation.
For solving this financial issue manager need
to adopt the prices optimisation system that
will help to set the prices of products and
services within organisation. Moreover, it can
attract the customer by setting the prices that
will help to maintain the customer for long
period of time. This system will help to keep
records of expenses and income in order to
make profits.
M4 Responding to financial problems, management accounting can lead organisations to
sustainable success
There are considering different types of problems in Airdri financial market consulting
company that are influence to operational efficiency of the business. The manager of company
apply different techniques which can help to solve recognise problems. Through benchmarking
and KPI as well as financial governance is helping to tackle financial problems in effective
manner. These problems are creating money related issues and it show negative impacts on the
productivity and profitability on the company. The company adopted three particular techniques
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to identify and resolve of the business in proper way and execute in effective manner (Burritt and
Tingey-Holyoak, 2012).
D3 Evaluate planning tools for accounting period to respond financial problems appropriately
Management of Airdri financial market consulting company apply three planning tools
like operating, master and cash budgets. These budgets can help to tackle problems and provide
way to how to applied different systems on these problems such as sudden expenses and less
payment by clients. These are solved by cost accounting system and price optimization system to
predict in advance. All of them help to manager to get ready for issues and resolve appropriate
way. These planning tools guide to the management to take appropriate actions at the time of
problematic situation so that they can respond them in effective manner.
Budgeted and actual cost of metal used in
producing Product A
Budgeted material cost
per unit of the product 2kg at £10/kg
Actual output 1000 units
Actual material
purchased and used 2200kg
Actual material cost £20,900
Actual material cost 10450
01/05/01
Opening
Inventory of 40
units @£3 each 120 10570
01/05/12
Bought 20 units
@ £3.60 each 72 10642
01/05/15 Issued 36 units 118.8 10523.2
01/05/20 Bought 20 units 75 10598.2
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@3.75 each
01/05/23 Issued 10 units 34.5 10563.7
01/05/27 Issued 25 units 86.25 10477.45
01/05/30 Issued 5 units 17.25 10460.2
CONCLUSION
As per above mention report it has been concluded that management accounting is
important part of every organisation which can help to analysis each activity in effective manner.
Various types of management accounting system can help to collect information and analysis
business activities. It can help to decision making process and company also produce
management accounting reports such as performance, budget, accounts receivable and inventory
reports. These reports include all reliable data and help to meet desired demand of customers.
There are computing of net profit of the business through marginal costing and absorption
costing technique. There are several planning tools which can help to analysis of financial
situation of company and apply techniques to reduce problems in effective manner.
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