Management Accounting Report: Cost Analysis and Reporting for Airdri

This report provides a comprehensive overview of management accounting, focusing on its application within Airdri, a UK-based hand dryer company. It begins by evaluating management accounting systems, including cost accounting, inventory management, job costing, and price optimization, and contrasts these with financial accounting. The report then explains various management accounting reporting methods, such as budget reports, accounts receivable aging reports, cost managerial accounting reports, and performance reports, highlighting their significance for decision-making. Furthermore, it delves into cost analysis techniques, specifically absorption and marginal costing, to prepare an income statement. The report also examines the advantages and disadvantages of planning tools and concludes with a comparison of how organizations adapt management accounting systems to address financial challenges.

Management Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................2
Activity 1.........................................................................................................................................3
1: Evaluate management accounting and requirements of different types of management
accounting systems.................................................................................................................3
2: Explain different methods used for management accounting reporting.............................5
3: Calculate costs using appropriate techniques of cost analysis to prepare an income
statement.................................................................................................................................7
Activity 2.......................................................................................................................................10
Explain the advantages and disadvantages of different types of planning tools.................10
Compare how organisations are adapting management accounting systems to respond to
financial problems................................................................................................................12
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting refers to the application of professional knowledge and skills,
tools and techniques for preparing information regarding accounting that proved beneficial for
management to build plans and policies in better way. On other hand management accounting
understood as an processing and presentation of accounting data and information that helps in
evaluation of performance of the management in better way. This report is based on the Airdri
which is a UK based company that specialise in developing the all kinds of hand dryers as per
the current market trends. This report is based on the importance of the management accounting
with requirement of various kinds of management accounting systems that helps in dealing in
effective manner. It also includes various kinds of management accounting reporting methods
that helps in giving accounting information in better way. Further it includes various kinds of
costs to prepare income statement to interpret right information from the data and statistics. It
evaluates advantages and disadvantage of various kinds of planning tools and techniques for
controlling budget. At last it includes comparison in organisations by comparing accounting
systems to combat from financial hazardous effects.
Activity 1
1: Evaluate management accounting and requirements of different types of management
accounting systems.
Management accounting in which involves to prepare and accumulating timely financial
and statical data to accumulate information from business managers that helps in taking day to
day decisions in proper way (Apak and et.al., 2012). Management accounting is one of important
tool that helps in taking major decisions by finding out financial problems in the business
process by enhancing the performance of an organisation to deal in effective manner by
accumulating important knowledge and information. For an organisation it is very much

important to understand and evaluate the various kinds of management accounting systems that
are as follows:
Management accounting system that vary as per their use and objective. Each and every
system should be designed to collect or accumulate information as per the need of the
management in taking important decisions. Management accounting system is an tool and
techniques that helps in preparing information for external and internal parties such as
stakeholders, regulators and lenders to accumulate information in taking right kind of decisions.
These are the most basis kind of management accounting systems that are as follows:
Cost accounting system:
A cost accounting system is a framework used by organisations for estimating the cost
relating to the products and services. It can be conducted to evaluate profitability of an
organisation, valuation of inventory and controlling cost factor . In that system cost allocation
should be carried out by using either traditional costing and activity costing method (Christ and
Burritt, 2017). Cost accounting is a kind of accounting system that aims to evaluate corporations
production cost by taking inputs costs at each and every production step by including fixed cost
such as capital equipment depreciation. In context of Airdri they use cost accounting system to
evaluate the cost associated while producing products and services in better way by evaluating
purchasing capacity of their consumer base.
Inventory management system:
Inventory represents to the business's stocked goods and materials with terms stock and
inventory often used interchangeably (Edwards, 2013. ). Inventory is very much important for
up to do a task or duty, put inputs for producing products to ultimate consumers. Inventory
management system is very much important that helps in enhance the cash flow of an
organisation, better reporting and forecasting capabilities and reduction in storage the costs of it.
In context of Airdri they manage each and every activity of inventory by controlling by tracking
two major functions by receiving and shipping. The major aim of the inventory management is to
accumulate inventory levels and helps to minimize the issues of under stock and overstock. By
evaluating tracking quantities in all warehouse locations that ultimately helps in taking greater
inventory decisions.
Job costing system:

A job costing system that involves the chain of activities regarding collecting or
accumulating information related to the costs that associate with a specific production or service
job. It is very much essential for organisation as well as consumers to evaluate cost under a
contract in which it get reimbursed. To get all information organisation have to evaluate majorly
three kinds of information that are direct material, labour and overhead cost. In context of Airdri
that bring changes as per the requirement of consumers. Job costing system helps in getting the
information related to the cost under the contract to get it reimbursed in better way.
Price optimisation system:
Price optimisation system is a mathematical program or practice that helps to calculate
effects of changing demand as per the change in pricing. Organisation merge the data and
information regarding cost and inventory level to recommend best pricing that helps in achieving
profitability and satisfaction level of consumers (Farouk, Cherian and Jacob, 2012). In context
of Airdri they by considering three major price elements that are by building pricing strategies,
the value of product and services in context of both buyer and seller and at last major tactics to
manage elements that directly impacts on profitability level. With the help of price optimisation
system organisation can be able to set prices as change in demand by collecting important
knowledge and information.
Difference in management accounting and financial accounting:
As financial accounting evaluates the external stakeholders on other hand management
accounting helps in evaluation of the internal system of an organisation.
Management accounting helps in building financial and statical information for the
business managers that helps in taking day to day decisions.
Benefits of management accounting system:
Management accounting system proved helpful by accumulating necessary knowledge
and information from various sources so that organisation and managers can take day to day
decisions in proper way. So management accounting system helps in transforming major
knowledge and information into important content.
Integration of management accounting reports with systems in organisational process:
Managerial accounting system contributes towards the achieving organisational goals and
objectives in better way by bring improvement in production process. It can be possible by
development and integration of cost management systems. Organisations measure various kinds

of cost and their inputs by eliminating its value to get better results. To get better kind of results
organisation have to integrate with accounting reports with organisational process to get better
results.
2: Explain different methods used for management accounting reporting.
Managerial accounting that focus on inside information received through the financial
accounting. Various kinds of reports that are used for planning, regulating and taking important
decisions that helps in measuring performance. These reports are continuously generated
throughout the accounting and bookkeeping period as per the organisational requirements. In
context of Airdri where many crucial decisions depend on the authenticity of these reports.
Budget reports:
Budget managerial accounting reports are very much important for an organisation to
measure or evaluate the performance level as an whole organisation, department wise or channel
wise (Gond and et.al., 2012). Each organisation prepares the overall budget to evaluate the
scheme of an organisation to get right kind of outputs. Budgets should be prepared on previous
experiences that a great budget should be prepared after evaluating the unforeseen circumstances
that might be arise. In context of Airdri it their budget list consist of income and expenditures
that helps in evaluation of various aspects that depends on it. Organisation always gives their
best efforts to achieving their goals and objectives as per the set budgeted amount. These kinds
of reports gives guidance to managers in giving best incentives, cut the cost and helps to
negotiate with the vendors and suppliers that works in a critical position for an organisation.
Account receivable aging reports:
Account receivable aging reports proved useful for those companies which heavily rely
on the extending credit terms. With help of breaking down balances organisation can be able to
find out their major defaulters and bad debts. With help of that evaluation strategies organisation
can be able to build plans and policies to get back their money by applying tighter credit terms
and policies. In context of Airdri they by using that accounting report can be able to determine
the methods to get output and measure their impacts on organisational development and
enhancement to get organisational goals and objectives.
Cost managerial accounting reports:
Cost management accounting report is one of important kind of reports of managerial
accounting that helps in computation of costs related to the article that are manufactured in an

organisation. In this report, all kinds of material costs, labour and overhead cost consisted in it to
evaluate the costing while producing products and services ( Klychova, Faskhutdinova and
Sadrieva, 2014.). The cost reports defines the various kinds of cost by briefing all necessary
information in proper way so that important results should be drawn out. This report helps to
measure capacity of cost pricing with selling pricing of products. By it profit margins should be
evaluated and monitored that they depict clear picture of all the cost and expenditures that comes
into production or procurement of articles. In context of Airdri, they use these kinds of reports to
measure the cost while production or procurement of articles.
Performance reports:
Performance reports are very much important to review and critique the performance of
each and every individual in an organisation. In context of Airdri in which departmental
performance should be prepared to evaluate the performance of whole organisation. It helps to
managers in taking key strategic decisions related to the performance of the employees for future
evaluation (Moser, 2012.). Further performance of an individual should be evaluated and for
good performance rewards should be given and under performers passes through the training
process. Moreover, these kinds of reports proved helpful to give deep insight about working
pattern of an organisation and provides loop falls while producing products and services. In
context of Airdri they by building these kinds of reports can be able to evaluate the performance
level of each and every employee that ultimately helps to remain always competitive in
marketplace.
3: Calculate costs using appropriate techniques of cost analysis to prepare an income statement.
Income statement is one of important key financial statement that helps in accessing the
financial position of an organisation. It can be accessed with help of two major kinds of costs
that are as follows:
Absorption cost:
The absorption costing is one of best method of cost accounting expressed all costs
related with the production or manufacturing a particular product or services that required as
generally accepted accounting principles of external reporting (Pavlatos, 2015). Some of the
direct costs associated with the manufacturing of the product which includes wages for workers

that physically gives their contribution, raw materials they used while producing products and
services and covered all kinds of overhead cost in it.
Marginal cost:
Marginal cost is the additional cost incurred with the production for getting additional
unit of production. Marginal cost which is changes as the production increase as per the one unit
of it. In that context fixed cost not changes that based on no. of product produced to get right
kind of outputs.

Using Absorption Costing
Units "£" Qtr1 "£" Units "£" Qtr2"£"
Sales 66,000.00 74,000.00
Production cost
Variable cost
0
.
6
578,000.00 50,700.00 0.65 66,000.00
42,900.0
0
Fixed cost
0
.
2
078,000.00 15,600.00 0.20 66,000.00
13,200.0
0
66,300.00
56,100.0
0
Add: Opening Stock
0
.
8
50.00 0.00 0.85 12,000.00
10,200.0
0
Total stock available
for sale 66,300.00
66,300.0
0
Less Closing stock
0
.
8
512,000.00 10,200.00 0.85 4,000.00 3,400.00
56,100.00 62,900.00
Gross profit 9,900.00 11,100.00
Less: under
absorption or Fixed
Overhead 0.20 400.00 0.20 2,800.00
Selling & Admin 5,200.00 Selling & 5,200.00

Costs
Admin
Costs
Net Profit 4,300.00 3,100.00
Profit & Loss Statement
Using Marginal Costing
Units "£" Qtr1 "£" Units "£" Qtr2"£"
Sales 66,000.00 74,000.00
Production cost
Variable cost
0
.
6
578,000.00 50,700.00 0.65 66,000.00
42,900.0
0
50,700.00
42,900.0
0
Add: Opening Stock
0
.
6
50.00 0.00 0.65 12,000.00 7,800.00
Total stock available
for sale 50,700.00
50,700.0
0
Less Closing stock
0
.
6
512,000.00 7,800.00 0.65 4,000.00 2,600.00
42,900.00 48,100.00
Gross profit 23,100.00 25,900.00

Fixed Overhead 16,000.00 16,000.00
Selling & Admin
Costs 5,200.00 5,200.00
Net Profit 1,900.00 4,700.00
Reconciliation
Profit as per
Absorption Costing 4,300.00 3,100.00
Adjustment for stock
fixed cost
Opening stock 0 12000
Closing stock 12000 4000
Deference Rate of
Fixed Cost -12000 8000
0.20 -2400 0.20 1600
1,900.00 4,700.00
Interpretation:
From the above numerical it has been summarised that from the income statement from
the absorption costing that is higher than in first quarter and lower in second quarter in marginal
costing. The reason behind that marginal costing shows the profitability of an organisation.

Activity 2
Explain the advantages and disadvantages of different types of planning tools.
Budget is a long term generally for a year a defined financial plan. In budget includes
planned sales volumes and revenues, quantities of costs and expenses, assets with liabilities and
cash flows includes. It is very important for an organisation to deal in effective manner by
measuring each and every factor in better way.
Budgetary control:
Budgetary control is a chain of activities that set by managers to set financial and
performance goals and objectives in a specified time period by comparing actual results with
desirable outcomes as per the requirement (Salterio, 2015).
There are various kinds of planning tools and techniques that helps to organisation in budgetary
control that are as follows:
Operational budget:
Operational budget is the annual budget of various activities in terms of classification of
budget code, functioning of the business venture or an organisation. It is very much important for
an organisation to determine each functional area in proper way.
Advantages:
Operational budget proved helpful in building accurate financial reserves instead of
restricting by reducing debts.
Disadvantage:
To prepare or build operational budget organisation requires lot of time and money
especially in poorly designed environment in which iterations are required. So Airdri have to
build operational budget after evaluating each and every factor in better way.
Master budget:
Master budget is an aggregation of all kinds of lower level of budgets that prepare or
produced by the functional areas of an organisation and also includes the budgeted financial
statement, forecasting of the budget and financial plans and policies (Spraakman and et.al.,
2015). It is basically presented in either monthly basis or quarterly basis that includes the entire
fiscal year of an organisation. The major attribute of that kind of budget that it explains the
strategic direction to accomplish organisational goals and objectives.