Management Accounting: Methods, Systems, and Cost Analysis

This report discusses the role and principles of management accounting, its systems, and different methods of management accounting reporting. It also evaluates costs using marginal and absorption costing methods and elaborates on the merits and demerits of various planning tools used for budgetary control. The report includes a case study of Airdri Group's financial problems and how management accounting can help.

Management
accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
P1 Define management accounting and also give important requirements of various kinds of
management accounting system.............................................................................................3
P2. Different methods that are exploited for the purposes of management accounting
reporting.................................................................................................................................5
P3 Evaluate costs by using adequate methods of cost analysis to prepare an income statement
using marginal and absorption costs.......................................................................................6
P4 Elaborate the merits and demerits of various types of planning tools used for budgetary
control...................................................................................................................................10
P5. Comparing how organisations adapts management accounting systems to respond to
financial problems................................................................................................................12
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is a concept which is preferred by each and every organisation
in order to make a number of reports by accessing the financial information of the organisation
(Bagherzadegan, and Khanmohammadi, 2019). Airdri Group was established in 1974 by two
mechanical and electrical engineers. Today, it is a family owned organisation operating in UK,
US and China. Stability in environment is main objective to Airdri's continuing product
development. By initiating best practices and performing with honesty Airdri Group try to
accomplish duties towards the environment, providing dependable and innovative commodities
that represents commitment of Airdri group towards wastage, energy saving , reduction in level
of noise and purify air. In the year 2020, Airdri has introduced SteraSpace, a variety of best in
class air and sanitisers for surface, that are build in such a that ensures effective elimination up to
99.6% of harmful bacteria and viruses. The report consists of two parts. The first part includes
the role and principle of management accounting and its systems which are explained in detail
using the techniques and method of marginal and absorption costing. Further, the part is summed
up by describing the integration and benefits of it in the entity. The second part takes into
consideration the different planning tools. Also the financial problems of Airdri Group are
discussed in the following report.
MAIN BODY
P1 Define management accounting and also give important requirements of various kinds of
management accounting system.
Management Accounting
It is also termed as managerial accounting. It is a technique of accounting that assist in
creation of statements, reports and documents that aid management in the process of decision
making which are related to the performance of business. It is mainly utilised for internal
operations of an organisation. It assists the management to perform all its functions including
planning, organizing, staffing, directing and controlling (Baxter, and Chua, 2019).
Role of management accounting and its systems.
It refers to an process that usually centres about observing and evaluating stratified
objectives to refer distinctive monetary and non-monetary data to higher governing body of
organisation. Administrators can uses this information for making various financial plans and

implementation of reports. The executive accounting is surely have more unpredicted content as
compared to organised summaries of budget. Main difference between them is that the prior one
is ready in affiliation with inner cycles on the contrary the last one is brought up for outsiders
such as investors. It generally assist in predicting future patterns and incomes of company
function which also advises in making plans related to spending.
The accounting framework is a tool of supervising and effecting employees just as
various costs which are primary for accomplishing important goals. Compulsory implementation
of the accounting framework in Airdri Group is beneficial as it provides different experiences
which helps in direction and organising procedures (Boyle, Boyle, and Hermanson, 2020).
Certain Management accounting systems are as follows:
 Cost accounting model is a strategic scheme which assists organisation in estimating
product cost for performing advantageous analysis and valuation of stock. It is beneficial
for Airdri Group as it assists in recognition of items that are advantageous for operations
of business. This system in addition of these also aid accountants of foundation in making
fiscal report. It consists of job request and cycle costing strategies.
 Stock administration system is concerned about valuing and accounting changes in stock
at any level of business. Airdri Group includes this model to expand its deals and increase
net revenues. Stock of business are of three types, to be particular, unprocessed
components, work underway and accomplished commodities. Its action is usually
required in organisations to increase operational ability and duration of business projects.
It assists Airdri Group in differentiating direct costs related with acquiring and troughing
away interactivity. It also assists entity in holding additional stock which aids in
happening of inadequacy (Campbell, Mauler, and Pierce, 2019).
 Cost streamlining system is a numeral model which assists an organisation in falling
down and evaluating how request vary with respect to the change in level of value of item
or administration. Data collected by this model is adjoined with cost and stock at
recommendations of costs that advises in further development of the productivity. Airdri
includes this system for collecting information regarding trends of market, demands of
clients and propensity to work its operations effectively.
 Job costing model is a process of collecting different information regarding subsequent
and disjoining cost with designated work or task. It requires to occupy differential data in

respect of direct material, cost and upward. Airdri Group includes this system in order to
conclude accuracy of its evaluating system which assists in giving estimations of items of
cost. It also assists organisation in creation of a reasonable advantage. Primary
requirement of this model is an organisation is consistent observation of creation
procedure which assists with identification of issues and making adaption in order to try
not to damage any situations (Chung, and Cho, 2018).
P2. Different methods that are exploited for the purposes of management accounting reporting.
It is used for designing, controlling, decision making purpose and measurement of
performance. These reports are consistently created through the accounting and auditing period
according to necessities. The outcomes of management accounting is in form of periodic reports
for the organisation's department managers and CEO. For instance, current creation of sales
revenue, the recent position or condition of the entity's accounts payable and accounts
receivables etc. Management reporting looks in the business in a more elaborated manner and
represents outcomes from different sections. Instead on focusing on the entire organisation,
management reports emphasis on a specific job, department or team.
Methods used for management accounting reporting are:
Cost report: While doing business in Airdri Group, management accounting examines a
number of costs of producing commodities. On this base, cost report is execute in Airdri Group,
as it analyse all labour costs, raw material besides any form of extra cost in order to maintain
reporting of management accounting. The whole information is then adequately combined with
the cost report. And hence, the technique assists in supervising and planning profit margins.
Performance report: It can be refer to as a descriptive statement which evaluates results
of specific operations which is incidental to the development of company in given time frame.
Management accountants of Airdri Group, making best usage of budgets for comparing real
expenses with revenues which are dependent on budgeted variables and them list or updating
data on basis of performance of report. When a report is prepared, managers design the demand
of its future for consumers and the requirement of a product in market and according to that
makes variations in prices (Lehner, and Harrer, 2019).
Inventory management report: It is an extract of unfinished stock and data of such
amount of stock is approachable, commodities that are sold the most and quickest, category
performance etc. connected to status collectively with demonstration of merchandise. For fruitful

growth of Airdri Group, it is essential for management inventory level in accurate and ideally
ways as possible. It is power of purchase manager of the company to make sure that accurate
stock levels are continued in accordance for producing and marketing of various types of
products. The revealing technique that records all kinds of deals which are related to
diversification of inventory to different compartments and their end results.
Budget report: This specific technique plays a important role in management accounting
in Airdri Group for communicating as it emphasis on formulation and diverging the budgets
with different sections of company. The report of budget focuses on execution of Airdri, firm
and is preserved in an entity. Report demonstrate administrator the way to reorganised terms
with suppliers and marketer, better employee incentives and cutting down the cost on
commodities. Directors also operate for up surging the demand in sales and reducing the
expenditure which results in saving of money (Li, 2018).
P3 Evaluate costs by using adequate methods of cost analysis to prepare an income statement
using marginal and absorption costs.
Cost: It can be referred as an amount which can be paid instead of getting product or service.
According to business, cost is evaluation of money with sources, risk obtained, opportunities
forgone, materials, consumption of time and utilities in producing with product delivery or any
services. For examining cost of formulation of income statement, financial analysts utilises
different kinds of techniques and methods.
Absorption Costing: In this method, managers utilises a technique for making external financial
as well as recording of income tax also. Examining of techniques incidental to cost acquires all
cost which is accompanied with production or selling a product (Li, 2022,May).
Profit and loss as per absorption costing method:
Cost per unit -Absorption costing approach
2020 2021
Absorption cost per
unit(B) Absorption cost per unit (C)
Direct Labour cost £ 11 Direct Labour cost £ 11
Direct material cost £ 17 Direct material cost £ 17
variable expenses £ 7 variable expenses £ 7

Fixed indirect production
cost £ 24 Fixed indirect production cost £ 20
(Fixed cost per annum/production units
2020)
(Fixed cost per annum/production units
2021)
Total cost per unit £ 59 Total cost per unit £ 55
Income statement 2020 and 2021:
Profitability statement using absorption costing method
2020 2021
Particulars
Sales 4000 * 95 380000 4500 * 95 427500
COGS (opening
stock + purchase -
less closing stock)
Opening stock 1500 * 59 =
88500
1000 * 59 = 59000
Production
Direct labour 3500 * 11 =
38500
4200 * 11
= 46200
Direct material 3500 * 17 =
59500
4200 * 17
= 71400
Variable expenses 3500 * 7 = 24500 4200 * 7
= 29400
Fixed production
cost per annum
3500 * 24 =
84000
4200 * 20
= 84000
Less: closing
stock
1000 * 59 =
59000
236000 700 * 55
= 38500
251500
GP 144000 176000
Less:
Administrative
11000 11000

overhead
Net Profit 133000 165000
Marginal costing: The cost analyse technique in which fixed costs of period and variable cost
are forced on units, cost are changed in complete manner in opposed to offering is referred as to
marginal costing. This method is used for analysing conditions wherein break even point is
equals with fixed costs. It implied additional costs that are part in production of extra output
units(Ling, 2021, April).
Profit and loss as per marginal costing method:
Calculation of opening and closing inventory units
2020 2021
Opening stock 1,500.00 1000
production 3,500.00 4,200.00
sales 4,000.00 4,500.00
closing stock
(Closing stock = opening
stock + production – Sales ) 1000 700
Cost per unit -Marginal costing approach
2020/2021
Marginal cost per unit (A)
Direct Labour cost £ 11
Direct material cost £ 17
variable expenses £ 7
Total cost per unit £ 35
Income statement 2020:
Sales (4000 X 95) 380000
Cost of sales (opening stock + production -clossing
stock)
Opening stock (1500 x 35) 52500

production (include all the production costs)
Direct labour (3500 x11) 38500
direct material (3500*17) 59500
variable expenses (3500*7) 24500
Less- Closing stock (1000*35) 35000
Cost of sales (opening stock + production -closing
stock) 140000
Contribution 240000
Less- Administrative overhead 11000
Fixed production cost per annum 85000
Net Profit before tax 144000
Income statement 2021:
Sales (4500 X 95) 427500
Cost of sales (opening stock + production -clossing
stock)
Opening stock (1000*35) 35000
production (include all the production costs)
Direct labour (4200*11) 46200
direct material (4200*17) 71400
variable expenses (4200*7) 29400
Less- Closing stock (700*35) 24500
Cost of sales (opening stock + production -clossing
stock) 157500

Contribution 270000
Less- Administrative overhead 11000
Fixed production cost per annum 85000
Net Profit before tax 174000
P4 Elaborate the merits and demerits of various types of planning tools used for budgetary
control.
Budgetary control process
The finance department of the organisation incorporates a variety of budgets for different
activities. On basis of which it takes corrective and directive actions for the company. A
responsibility centres are identified for a operational unit which is lead by a team leader who is
held responsible. In simple words it is a technique where actual results are being compared with
budgeted result (Montenegro, and Rodrigues, 2020).There are a number of methods, techniques,
planning tools, used in budgetary control which can effect the result in economical and effectual
operations of a business. There are many benefit and demerits which are connected with
budgetary control which assists the organisation to develop, expand and which can also create
hurdles in the path. Budgetary control is the utilisation of actual expenditure with some levels
which are strictly set up the organisation. Planning tools are the instruments which provides
measurement and following up the operations for implementing a specific plan or project.
Executives of Airdri Group are using various kinds of planning tools for the adequate control of
the budgeting system. Some planning tools are discussed below:
Operating budget: It can be termed as a budget which is in accordance with all the
operating revenues and activities related to expense as well. Supervisors of Airdri Group
use this budget for managing and controlling expense related activities in relation to
business. It also assists in forecasting of issues which are incidental to future happenings,
expenses and take preventive course of actions in advance(Narayanan, and Boyce,
2019). There are three major elements of operating budget which can be termed as
revenue, variable costs, fixed costs. There are some benefits and demerits for Airdri
Group:
Advantages Disadvantages

It can have a fruitful result in Airdri
Group for calculating costs and
management on expenses of the
business functional activities for
accomplishing the main motive of
business in the long period of time. This
method can assists in making the best
available possibility to enlarge business.
It is not suitable for Airdri Group as it do not
encourage any assistance for evaluating the difference
between standard and actual costs. This method is not
considered suitable and is not flexible in nature and
working. Modifications cannot be made in policies
which are formed during the year.
Zero based budgeting: Zero based budgeting is a method which explains the reasons of
the expenses which are incurred in the financial year (Ng, 2018). It is used by Airdri
Group for examining the best possible usage of resources distributed at different places.
There are certain merits and demerits for Airdri Group:
Advantage Disadvantages
This method assists Airdri Group in
determining the areas which aid in creation of
profits and the operational activities in which it
utilized. This provides a better, clearer and
more applicable data for understanding the
working of company and analysing of business
performance that would assists in management
of the budgets and have a proper control over
them.
It is understood as a challenging, time
consuming and an pricey process. It is
considered as tough task to detailed the usage
of expenses and creation of profit in budgets.
Any decrement in the profit margin or revenue
of the company can effect the brand image of
the company.
 Capital budgeting: It is an assessment acknowledged by an organisation for the
determination and estimation of potential for essential projects and investments. For
instance, planning for investing a huge amount in machinery and new technology for long
term success of operations of entity (Padovani, and Iacuzzi, 2021). This technique
assists Airdri Group in researching and selection of beneficial decisions for

accomplishing long term success of organisation. Its merits and demerits in context
Airdri Group are:
Advantage Disadvantages
It is advantageous for Airdri Group as it results
in better knowing of risk and its effects of the
investment decisions. It aids the business to
select the best investment aspect in a
aggressive market to stay in lead from its
competitors. It also stops the management to
over and under investing.
It is not advisable for Airdri Group as there is
long term investment decision and which is not
good approach. If the decision are taken in
wrong manner than it can effect the
organisation in and durability of the business in
long span.
Managerial accountants of Airdri Group uses a number of planning tools for the
preparation and forecasting of different budgets. The organisation uses zero based, capital and
operating budget techniques for examining the effectiveness of business working. Zero based
budgeting is used by Airdri Group for allocation of revenue and profit to specific expenditure. It
can be utilised in an entity by deciding which functions should take place and the manner of
performing those functions (Sellami, and Gafsi, 2019). Administrators of company uses capital
budgeting for making accurate choice regarding a project or investment. This can be prepared in
an entity by discovering and evaluating potential opportunities. Operating budgeting is utilised
by Airdri Group for keeking a track of incomes as well as expenses and also helps in assessment
of financial performance of business. This can be prepared in an organisation through making a
comparison between the actual and pre determined costs.
P5. Comparing how organisations adapts management accounting systems to respond to
financial problems
Financial problems: It can be determined as a situation in which an organisation is
becomes unable to fulfil its goal and pay off its liabilities and expenses on time for both long and
short run. For example, decrease in the cash flows for performing operations of business in an
effective manner. Certain financial problems related to Airdri Group are as followed:
Lack of finance: Finance is determined as the most vital or can be said blood for organisations,
which assures operational effectiveness. Without the sufficient availability of finance, an

organisation cannot think of its expansion and further development. Even inadequate finance
can create issues in day to day operations of Airdri Group.
Mismanagement of cash flow: This method can lead Airdri Group towards the path of
inefficiency and diversification of activities in various areas. Improper management of cash flow
can results in confusion and default in reporting of operations of business. It is a important
financial problem which seriously effects performance of business.
Excessive Debts: It can create a great financial problem to entity. Highly indebtedness of funds
can lead limits Airdri Group in keeping its short as well as long run liabilities and even creates a
situation of bankruptcy. This financial issue can also create obstacle in meeting daily operations
of an organisation.
Approaches of management accounting used by Airdri Group are as follows:
1. Financial governance: This includes the policies and processes that assists an entity in
keeping track of financial transactions and vents, performance of management and ,
monitoring of different operations. Ineffectiveness of this methods limits Airdri Group in
examining and gathering correct information about the financial transactions. Risk can be
identifies at a faster pace as compared to its competitors if this approach is approach is
implemented in an effective manner (Triantafillou, 2022).
2. Key performance pointers: This indicates the set of quantifiable techniques that assists
an enterprise in measurement of its overall performance. These are traced by automatic
software's and various analytical techniques. It is advantageous for Airdri Group as it
assists in formulation of organisations goals and also evaluates execution in operations.
3. Benchmarking: It is expressed as an method of making comparison between products,
services and strategies of company those organisations who are determined as leaders in
the industry. Airdri Group utilises this technique in their workings as it assists in reducing
performance gaps which leads to identification of areas which are required to have
modifications in them.
Comparison of different entities for applying management accounting system in resolving
a number of financial issues.

Basis of difference Airdri Group General Electric Company
Financial problems Airdri Group can be seen
facing some problems related
to working capital. The daily
activities cannot be performed
on time without availability of
adequate finance.
General Electric Company is
observed facing issue of
excess cash outflows which
leads to a situation where the
organisation becomes unable
to pay off its debts and
expenditure on given time.
Management accounting
approaches
Airdri Group acquires the
method of benchmarking to
make a responsive approach
towards its financial issues.
This technique of management
accounting aids in
measurement of performance
of organisation effectively in
respect of its competitors.
General Electric Company
uses key performance pointers
to examine its past
performance and make a
comparison between past and
present performance. This
assists in evaluation and
identification of differences
between the two.
Management accounting
systems
Airdri Group uses cost
accounting system to distribute
procurement cost among
various products. This aids in
increased revenue and profit
generation.
General Electric Company
uses inventory management
technique to manage its
different workings in
organisation. Effectiveness of
this application assist in
handling its financial issues in
an effective and efficient way.

CONCLUSION
The above prepared report concludes a brief discussion of Airdri Group, the meaning of
management accounting and need of various kinds of man accounting systems in Airdri Group.
It also consists of different techniques used in the process of management accounting reporting.
It also discloses the techniques of cost analysis like marginal costing and absorption costing used
in the preparation of income statement. The following report also contains the advantages and
disadvantages of various types of planning tools applied in budgetary control. It also represents a
comparison on the way organisations adopts management accounting systems to overcome
financial problems.

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(Lehner, and Harrer, 2019) (Li, 2018) (Li, 2022,May) (Ling, 2021, April)
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