Management Accounting Report: Analysis of Airdri's Accounting Systems

This report examines management accounting principles within the context of a case study involving Airdri, a hand dryer manufacturing company. The report delves into the importance of various management accounting systems, including cost accounting, job costing, and inventory management, highlighting their roles in planning, organization, and decision-making. It explores different types of management accounting reports, such as performance reports, inventory management reports, and job costing reports, emphasizing their significance in assessing company performance and facilitating financial control. Furthermore, the report analyzes cost analysis techniques and planning tools, such as budgetary control, used to address financial problems and improve overall business efficiency. The report provides an evaluation of the benefits of different management accounting systems and their combined application in organizational processes.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Importance of different management accounting system.....................................................1
P2. Types management accounting reports and their Importance of and its type.......................3
M1 Evaluation of Benefits of various management accounting systems...................................5
D1 Combination of management accounting system and its reports in organisational process. 6
TASK2.............................................................................................................................................6
P3. Appropriate techniques of cost analysis...............................................................................6
M2 various type of accounting tool and techniques....................................................................8
D2 Evaluation of data assorted for above statements.................................................................8
TASK3.............................................................................................................................................9
P4. Uses of planning tool ease budgetary control.......................................................................9
M3 Various planning tool and application..................................................................................9
TASK4...........................................................................................................................................10
P5 Financial problem and techniques to solve these problem..................................................10
M4 Examine of planning tool to cop with financial issue........................................................11
D3 Evaluation of planning tool to deal with issue....................................................................11
CONCLUSION..............................................................................................................................12
.......................................................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Managerial accounting is related with providing information to managers those are inside
an organization and direct and control its operations. This can be compared with financial
accounting that is concerned with providing information to stockholders, creditors and others
those are outside an organization (Amidu, Effah and Abor, 2011). Management accounting plays
an actual main role in providing data to the people of management. The scope of management
accounting is very extensive as it comprises all types of accounting information that are related
to the particular organization. Manager of companies collect, monitor, measure, control and
evaluate the gather information that assist them to create strategies for attainment of companies
goal. To recognize the significance of management accounting, Airdri is chosen, it is a hand
dryer manufacture company that was founded in 1974 and one of the small enterprises of UK.
This project covers a detailed information different management accounting system and
importance of various reports. Different costing method of costing such as marginal and
absorption costing is used to ascertain the net profit, report focus on different planning tool for
creating budgets. Under this project manager of company uses management accounting
approaches to overcome financial problem arises within company.
TASK 1
P1. Importance of different management accounting system.
Management accounting denotes to the effective preparation of all those information that
is related to internal management and which advances the process of efficient decision making of
the organization. Management accounting systems mentions the process of gathering of
applicable records from the business operation and then translating them into useful accounting
information. So there are various importance role of management accounting system such as:
Help in planning: Planning is complete with a opinion to attain small term as well as
long term objectives of the firm, so management accounting aids in valuations for the
expenditures and profits could be done in advances, management accounting systems helps in
evaluating the appropriate information, so that goals of the business entity can be accomplished.
Helps to organise: Management accounting supports in making those conclusions in
respect to obligation of roles and duties, so that a accurate flow of the work can be maintained
that help in proper maintenance of workflow in company. Management accounting systems also
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plays a crucial role in evaluating the execution of company, so that operations of the organization
can be adjusted and performed in proper manner (Carlsson-Wall, Kraus and Lind, 2015).
Ease decision making: The key role of management accounting system is providing
effective decision making within an organization for the improvement of performances of
employee and operation and increases the productivity of company.
For better organising and collection of information in Airdri, manager uses different type
of accounting system. These systems are helpful in evaluating and measuring the information
that is related to cost, performance, inventory as well as jobs that are described underneath:
Cost accounting system: Cost accounting is an accounting process that counts and
examines the costs associated with production of product and different business projects within
company. So that accurate amounts are reported on financial statements. It helps in effective
decision-making practices by permitting a company to estimate its total costs. Some types of
costs in that are calculated by companies through cost accounting system are direct, indirect,
fixed, variable and operating costs. This system is help small businesses to inspect and increase
its profitability by valuing cost of their product. Airdri, is a manufacture of expensive hand dryer
thus it need vast cost for production, therefore cost system is useful. Manager record all the
manufacture related and operation relevant cost that aids them to get exact information about
cost that is incurred in production process. There are mainly three type of cost accounting system
that have different importance for company such as actual costing, is used to track and record
direct costs that are involved in producing a product. For instance, manager of Airdri uses to
evaluate cost of total hour applied in manufacturing hand dryer. Normal costing is applied to
originate the cost of a product. For example in Airdri manager uses normal costing to derive the
cost of hand dryer. Standard costing, is related to evaluate difference between actual and
budgeted cost.
Job costing system: This system involves the development of collecting information about the
costs related by a specific production or facility job. This information might be essential in order
to submit the cost information to a buyer under a agreement where costs are compensated (Fisher
and Krumwiede, 2012). This system needs to collect the basic three type of job cost information
that are direct material, labour and other overhand which is involve in production of good. For
example, manager of Airdri, uses this system to calculate basic cost incurred on direct labour,
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material and other overheads which is incurred on production of hand dryer, that further can be
implemented on buyer which is reimbursed.
Inventory management system: The aim of inventory system or control is to precisely
distinguish present inventory levels and routinely diminish under stock and overstock situations
in company. By capably tracking quantities through stocking locations manager have vision and
they will be able to make effective inventory decisions. This system has number of important
function such as makes purchase order, form sales demand, receive, relocate, adjust and dispose
of inventory in a proper manner. Inventory management system has crucial benefit to companies
like improve a company bottom line, bring accuracy in inventory and maintain company
workflow. This system is used by manufacture Company to determine the definite information of
stock. Manager record the inventory while it is in warehouse and involved in production process.
Inventory remains in company in three forms that is raw material, goods in progress and finished
good. In Airdri, executive apply system of inventory management to record the total stock
available within them for production. They also manage and record the total flow of finished
hand dryer form various demand through this system. Some of the basic techniques of inventory
management system to continue effective report about stock such as FIFO, LIFO, perpetual, JIT
and periodic inventory. Management of Airdri, use FIFO methods that means the goods that are
received earlier will be used first for production of product.
Price optimisation system: This system is detailed programs that analyse actual demand
of customer that can be differs at different price levels. Then syndicate that data with information
on charges and stock levels to endorse prices that help company to the improve profits. Manager
of Airdri, help to determine the initial pricing level, the total promotional pricing of hair dryer
and values that are related to markdown so that actual picture amount profit can be determine.
P2. Types management accounting reports and their Importance of and its type.
Management Accounting reports are very significant that displays the strict image about
the company performance. It is the methodical recording of each financial transaction in report
by manager. Advanced, these reports are offered to stockholders both inner and exterior to show
the financial position of an organisation (Monroy, Nasiri and Peláez, 2014). These reports are
sustained at end of every section so that manager has the complete opinion about the business
finance. Management accounting reports are vital for small companies like Airdri, as they
originate significant approaches to decrease cost and exploit profit. Manager of Airdri, prepare
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diverse kind of report to comfort decision making process. Some of the basic reports are defined
underneath:
Performance Report: It is most fundamental report of management accounting as it help
the business owner to understand and control across with an organisation. They calculate the cost
in prior year and estimate budgets for the following year and determine the places to reduce cost.
In Airdri, manager prepare cost budgeted report to control expenditure involved in production of
product (Zainun Tuanmat and Smith, 2011). They also estimate the future expenses and form
strategies with the help of this report.
Importance: This report support to forecast the monetary health and provide the picture
about the complete business process within company. Managers calculate the outflow and
observe the income produced through an accounting year with the benefit of budgets report.
Inventory management report: It is organized to record feature information about the
stock list positioning in an organisation. It helps to mark of supply series more well-organized,
overall detail of data, employment and other incidentals intricate during production of good.
Management of Airdri, formulate these report to associate diverse circulation networks within
company to deliver finest way of supply their product. They also maintain record of total stock
available, goods in transit and finished product.
Importance: This report requires main significance in management accounting as
executive retain a way to record stock existing in the company. Inventory management report
supports them to record all capacity of product in storerooms and continue proper flow of the
product.
Account receivable report: This report is essential for a business firm, as it give product
and services on credit basis to their purchasers. It aids to regulate the rigorous outstanding
amount form borrower and arrange them in a list liable on the days of outstanding. Manager of
Airdri, formulate report to calculate the entire sum that is need to be recovered form their
customer. It keeps the organized record of those consumers who have not paid filled sum at the
time of purchase (Moser, 2012).
Importance: This document is also essential to manager, as they define entire amount of
income to be produced in upcoming time therefore aid to advance credit policy. With the help of
account receivable report management transform the collection procedure of Airdri.
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Job costing report: This report is tools that are used to reiterate the status of a project or
operation. Management distribute these report to experience employee for setting goal and
appraise performance of other worker working in any operation activity. In Airdri manager uses
these report to record the daily functioning of different operation related to production of Hand
dryer. This helps the, top manager to increase the profitability of operation and increase
efficiency of worker. Maintaining a daily operational performance report helps them to inform
other employee about the business condition so they make better decision.
Importance: Major importance of this report is to provide detail information about the
operation of business. So that management of organisation can make a effective decision in
respect if operation are not profitable.
M1 Evaluation of Benefits of various management accounting systems.
System Benefits
Cost accounting system  It supports managers in a way, so that they can
investigate greatest commercial produces for company.
 This also helps them to determine accurate values for
goods by endow the correct data of cost.
Inventory management system  This system hemp executive upsurge effectiveness and
profitability of Airdri, by maintaining sufficient stock.
 With the assist of this system, company increases the
level of obvious information of stock.
Job costing system  Managers determine the productivity of discrete job
accomplished within an organisation.
 It provides complete information of charge like labour,
material and other overheads that is elaborate in
different jobs within company.
Price optimisation system  This system is helpful in analysing the overall
perception of customer (Öker and Özyapici, 2013).
 With the help of this system manager provide faithful
prices to different buyer depending upon their demand.
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D1 Combination of management accounting system and its reports in organisational process.
It has been determined that management accounting reports and different system are
totally significant for all organisations that want to grow, as these system and report aid to post
and evaluate performance of business firm. This give feature information to control cost, amount
possessed by debtors and financial position of company etc. Budget report are helpful in
estimation total cost, account receivable reports support the managers to advance the credit
policies and assortment process. Inventory management report is valuable to trajectory the stock
accessible in warehouse and inventory involved in entire supply business. Whereas, job costing
report are useful to keep record of daily business activity performed within an organisation.
These all report help them to increase the efficiency of company and improve performance of
business.
TASK2
P3. Appropriate techniques of cost analysis.
Cost is that total amount that is to be paid by an individual to get something. It is
basically, the movement of currency from purchaser to vendor. In business, it is define as the
monetary value that is going through retailer which contains cost of direct measurable, expenses,
workforce etc. It is defined that all outlays are cost, but all cost are not considered as expenses
because some are acquired in the achievement of income generating properties (Windolph and
Moeller, 2012). Manager of company are talented to regulate the costs of creation or facilities
they proposal for sale so that they of its artefact keeping definite cost in notice. Realistic cost of
product will fascinate additional number of consumers. There are many types of cost such as
direct cost and indirect cost that should be managed by manager of business to generate more
revenue.
Managers in Airdri, should fix such cost for the hand dryer that may draw interest of
more customers and help to obtain large market share. Cost of products includes different direct
and indirect expenses. Following techniques are followed by managers of chosen company to
calculate their net profits:
Marginal costing: It is related to the entire cost elaborate in manufacture on one
supplementary or additional unit of output. Marginal costing is a program whereby adjustable or
variable cost is charged to cost units and the fixed cost features to the appropriate dated are
imprinted off in full against the input for that phase. It includes only variable cost in accordance
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to total sales that are further used to calculate net profit margin for company. So in common it is
known as variable estimate also in which only variable cost are accrued and cost collected and
cost per units is resolute contingent upon variable cost.
Absorption costing: It is deliberate one of the best traditions to regulate cost of product
and net income and known as full or total costing method. It consists of all fixed and variable
costs are allocated to cost focuses where they are accounted for using absorption charges. This is
seems to be one of the crucial method that could give necessary result that is help to make future
decision (Ruiz-de-Arbulo-Lopez, Fortuny-Santos and Cuatrecasas-Arbós, 2013). It includes the
following components such as prime cost, indirect overheads, selling and distribution costs.
Calculation of net profit margin with marginal costing method:
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 *
16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
Computation of net income by absorption costing method:
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break even analysis: This analysis of factor help company to ascertain what needs to be
sell in a month or annual so that total cost of doing business is covered. It is a point where total
expenses are equal to total income, company faces no profit no loss situation. In Airdi, manager
used to determine the point where sales are equal to cost involved in production of hand dryer.
A. Total number of product sold
Sales per unit 40
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Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. Calculation of breakeven point in accordance to sales revenue
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
BEP in sales 20000
c. Calculation for getting desire profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety: It is helpful for investor to purchase securities when their market value
is below than its intrinsic value. This is defined as the market price of share is than its integral
value the actual difference is the margin of safety.
d. The margin of safety, if 800 products are sold
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
M2 various type of accounting tool and techniques.
Historical cost: This tool is important to measure the value of an assets recorded on
balance sheet on its nominal cost instead than its original cost.
Marginal tool: It is considers to be main technique which is used to determine net profit
and productivity of company. It is basically related to calculating the cost of an additional unit of
output.
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D2 Evaluation of data assorted for above statements.
Two method of costing is used to ascertain the net profit margin of company that are
marginal and absorption costing. With the help of marginal costing technique the profit margin is
$17500 while profit generated through absorption costing is $15675. This shows that profit
generated through marginal costing is $1875 more that other method, so it the best technique for
calculating net profit in Airdri.
TASK3
P4. Uses of planning tool ease budgetary control.
In common, the budget is defined as the statement that represent the financial estimate of
expenses and income for a specific period. The purpose of budgetary control process, budgeted
and potential feature those are used to compare and withdraw all kind of difference that are arises
within company. There are various helpful centres that belong of impressive process to cop-up
with various budget needs (Schaltegger and Csutora, 2012). Planning is one of the necessary
tools that can be taken into account for controlling various issues those are arises in an
organisation. Some of them are discussed below:
Forecasting tool: This tool is use to prepare estimation for upcoming time depending
upon current and past data to deal with uncertainty. Calculation future cannot have to consists of
various data those are gathered within an organisation. It is utmost important method that is
reasoned by business for planning their future projects.
 Advantage: The primary purpose of forecasting is to furnish business with precious data
to business which can be utilized to make decision respect the future.
 Disadvantage: These are largely depending upon analysis calculation which would relies
on prejudiced inputs and henceforth not being able to taken into report as more certain.
Scenario tool: This tool is related to one of the effective structure that help manager of
company to thought about future. In this a team is develop to draw certain scenario cases which
support company to cop up with future issue (Scenario planning, 2018).
Advantages: It make companies to deals with uncertainty with effective decision making
strategy for upcoming time.
Disadvantage: There is deficiency of sensible happening that are found to analyse
various impressive decision regarding coming growth of the institution.
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M3 Various planning tool and application
There are various kind of planning tool such as forecasting tool that is helpful in
analysing total expenses involved in production process. Scenario tool is uses to determine
different scenario from the past so that company can deal with upcoming issue. Revenue creation
and planning is aforesaid to be essential principal for evaluating alteration of income connected
problems in more reliable manner.
TASK4
P5 Financial problem and techniques to solve these problem.
Financial problems: Every small business firm face a situation of shortage of fund
depending on industry size, size of business scale, financial footing and numerous other factors
any one of hundreds of financial challenges may present themselves. Companies face financial
issue such as, delay in payment of salary to staff, not having enough amounts to run daily
operation, late payment of bill etc. (Tsai and et. al., 2013). No matter, whether the business is
starting, operating or growing. Some of the basis financial problems faced by Airdri are
described below:
Problem of cash flow: This is a situation of financial problem where company find
shortage of cash inflow. This is because getting such customer to pay likely in a manner that
keeps a regular inflow of cash, but it’s not easy to collect receipts from all debtors on time. To
avoid these challenges, maintain good collection methods, set up the payment criteria in written
contracts and screen customers before extending credit or payment.
Lack of money management: In Airdri, executive absences the ability to manage their
funds and they face the problem of shortage of fund. They do not have proper knowledge to
control their expenses.
More spending than earning: In Airdri, manager spends more revenue on sales
promotion activities to increase their sales. But as a result company is not able to generate
income and there is a chance of new financial problem. Their promotion activities are not able to
attract more customer there low sales for the period.
So manager of company wants to increase the productivity and performance of during an
accounting year. Therefore applies different management accounting approaches such as
benchmarking and Key performance indicator to overcome these above mention financial issue.
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