Management Accounting Report: Airdri Ltd. Financial Analysis

This report provides a detailed analysis of management accounting practices within Airdri Ltd., a company specializing in the manufacturing of warm air hand dryers. The report begins with an introduction to management accounting and its significance in decision-making, followed by an examination of various management accounting systems employed by Airdri Ltd., including cost accounting, price optimization, job costing, and inventory management. It also explores the benefits of these systems. The report then delves into management reporting systems, such as performance reports, budget reports, cost reports, and aging reports, highlighting their usefulness. Furthermore, the report discusses different costing methods, specifically marginal and absorption costing, and their application in calculating net profitability. It also covers budgetary control tools, their advantages, and disadvantages. Finally, the report examines how Airdri Ltd. utilizes management accounting systems to address financial problems, emphasizing how these systems can lead to sustainable success. The report concludes with a summary of the key findings and a list of references.

Management
Accounting

Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1: Various management accounting systems along with its requirements within an
organisation..................................................................................................................................1
P2: Various management reporting system along with its benefits to an organisation...............2
M1. Evaluation of benefits of various management accounting systems....................................4
D1 Management accounting system and management accounting reporting are integrated with
organisation process.....................................................................................................................4
TASK 2............................................................................................................................................5
P3: Different costing methods and its use to calculate net profitability......................................5
M2: Management accounting techniques and financial reporting documents............................9
D2. Financial reports which applies to interpret many business activities..................................9
TASK 3............................................................................................................................................9
P4: Budgetary control tools along with its benefits and drawbacks to an organisation..............9
M3. Usage of different planning tools for preparing and forecasting budgets..........................12
TASK 4..........................................................................................................................................12
P5: Comparison of how organisation adopt management accounting system so as to respond to
financial problems.....................................................................................................................12
M4 Analysis of how in responding to financial problems management accounting can lead
organisations to sustainable success..........................................................................................14
D3 Various planning tools to resolve financial problems.........................................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting refers to the provision of financial information which assist
management to make corrective decision for the development and growth of business. According
to ICMA, Management accounting is an application of professional knowledge and skills in
maintaining financial accounts in such an understandable manner which makes easy for the
management to frame an effective policies and control of operations of an organisation. The
present assignment report is based on Airdri Ltd. which deals in designing and manufacturing
warm air hand dryers consuming less energy and having unique features which is engaged in
manufacturing sector located in United Market. The report mentions the management accounting
and reporting systems along with their types and application within an organisation. In addition
with this, two costing methods which includes marginal and absorption are properly explain
under this report with a proper calculation of net profitability. Apart from this, planning tools to
control budget and use of management system to resolve financial issues are also discussed
under this report.
TASK 1
P1: Various management accounting systems along with its requirements within an organisation
Management accounting system :
It refers to the formulating and supply financial information to the organisational managers
on proper time so this helps in their regular as well as short term decision making. It is a
procedure that recognize, summarise , record and present all the financial data or written record
in the books of accounts like balance sheet, profit and loss account, cash flow statements etc.
Airdri Ltd. company use many accounting systems to keep their financial records that are
necessary in decision making process that helps in achieving their organisational goals
(Arnaboldi, Lapsley and Steccolini, 2015) The systems that are used by Airdri Ltd. company are
given as follows :-
Cost accounting system :- It is system that is used by Airdri Ltd. company to calculate
the entire expenditure which is incurred in supply large varieties of goods and services after
apportion cost to all monetary service individually. It is very appropriate to followed by the
company which is distributed its goods and services in various available range. Airdri Ltd. is
used this system to find out the actual cost occurred at the time of production to find out the
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profitability in the future of each and every product that is delivered to the customers (Bryer,
2013).
Price optimisation system :- This system is used by Airdri Ltd. company to find out the
variation in the perception of the customers at different price level of product and services that is
offered by different channels. This system is used by the company to find the profit margin in
context to change in price so it helps them in setting their price of the product by making
particular profit in future period of time. In this managers of Airdri Ltd. appoint researcher to
conduct the particular research regarding the satisfaction level of the customers towards the
existing price of the product or if it will get change in future period of time.
Job costing system :- It refers to the system that helps Airdri Ltd. company in
calculating the total manufacturing cost of the each commodity that is incurred in providing
varieties of goods and services after apportion cost to all fiscal service individually. It is very
appropriate to adopt by the enterprise which is deliver its goods and services in variety of price.
Airdri Ltd. company uses such system to estimate the cost of each commodity so this helps the
enterprise to find out future profit that is generated by each and every commodity (Cheng, 2012).
Inventory management system :- This is a system which is used to track the level of
stock available in the industry that includes availability of raw material, organisational assets,
etc. It also helps an enterprise to fulfil their customer needs and demand on time to build brand
faithfulness and trust towards the enterprise. Airdri Ltd. company uses this system to know the
availability of the stock so that it prevents from the overstock in which company has excessive
stock and under stock in the industry. Inventory management system also maintain the whole
data regarding availability of stock in the Airdri Ltd. company.
P2: Various management reporting system along with its benefits to an organisation
There are various management reporting system which can be adopted by AIRDRI LTD.
company in order to continue its operations more smoothly. Here are some types of reporting
systems with brief description:
PERFORMANCE REPORT:
It is a report or a detailed statement that measures routine activity in terms of success
over a specified time frame. The report should provide all the needed information to readers.
They are routinely prepare by AIRDRI LTD. and it contains performance indicators which will
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measures the achievements of employees and company both on a regular basis (Kober,
Subraamanniam and Watson, 2012).
Usefulness: it involves collecting all the information related to work performance,
creating reports, analyzing it and sending it to respective managers or stakeholders. In AIRDRI
LTD. it is a part of communicating management plan and it contains details required by them. It
serves as a base for evaluating performance and communicating various programs.
BUDGET REPORT:
It is an internal report which compares estimated budgeted and it compares estimation
with the actual performance over a given period of time. In AIRDRI LTD. company it is prepare
to compare closeness of budgeted performance with actual one during an accounting period. It
often differ from actual outcome because it estimates future expenditures (Lachmann, Knauer
and Trapp, 2013).
Usefulness: Managers can find out how accurate their predictions were related to
expenditure and can accordingly estimate their next budget. They can correct those performance
which are not inline with the financial goals of budgets. It can help AIRDRI LTD. company to
manage its cost among certain projects or departments.
Cost reports:
It is a financial report that identifies, computes and offer a summary of expenses for a
specified project in an accounting year. It offers managers to realize the cost and estimates profit
margins and monitor ongoing projects to correct waste area through cost control.
Usefulness: it is matched with the estimated revenue to evaluate profitability. AIRDRI
LTD. company can identify profitable area of business to put additional efforts there instead of
sections with less profits. It provides understanding of all expenses for better utilization of
resources. If the management wishes to expand, diversify or shut down certain operations, this
report will help in determining future plans.
AGING REPORT:
It is that report which shows how long you had an asset or how long a bill has gone
unpaid. It arises when company provides goods or services on credit and allow customer to pay
after some days. It comprises list of each customer and unpaid sales invoices (Morden, 2016).
Usefulness: If AIRDRI LTD. company have older accounts payable then it should take
immediate and effective actions to correct cash flow. Reviewing aging reports monthly can help
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in identifying specific items which need action for strategic decisions. It tracks specific items and
helps to identify accounts receivables or payable for the company.
M1. Evaluation of benefits of various management accounting systems
Various system of management accounting have different benefits which helps the
organisation in achieving their targeted goals and objectives within a specific duration of time.
The benefits of these management accounting system are mentioned below:
Management accounting
systems
Benefits Evaluation of benefits in
context of organisation
Cost accounting system  This system of
management
accounting will help
the business of Airdri
Ltd. In determining
the actual cause of
increase and decrease
in the profits of
business.
 This system has a
significant impact on
the business of Airdri
Ltd. This system
would help them in
evaluating the amount
of cost that has
incurred in carrying
out the activities of
production and will
also help in
monitoring the actual
performance with the
standard one.
Price optimisation system  It would help Airdri
Ltd.. In forming a
decision that is
beneficial to both the
customers and
organisation and will
also allow the them in
 This management
accounting system
would help the
business of Airdri
Ltd.. By allowing
them to make the
pricing strategies for
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assigning the prices
optimally.
their product which
are suitable to their
customers.
Inventory management system  This system involves
balancing the level of
inventory in an
organisation . This
will support the
business of Airdri Ltd.
by minimising the cost
and maximising the
sales and profits of the
business by achieving
effectivity.
 This will support the
business of Airdri Ltd.
By providing them the
information about the
level of stock
available to them and
what should be the
amount of production
should be their as per
the requirement of
their customers. This
will help the business
in capturing a large
customers.
D1 Management accounting system and management accounting reporting are integrated with
organisation process.
For the gainful of Airdri Ltd., mix between the executives bookkeeping framework and
bookkeeping announcing should be done that help the board in settling on a powerful choices
and plans in accomplishment of hierarchical objectives and targets. For instance, keeping up
records of exchanges made by Airdri Ltd. in administrative reports can be conceivable just if the
executives bookkeeping frameworks are utilized, for example, stock administration framework
help in giving adequate data about the present degree of stock which further to be recorded under
stock administration report.
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TASK 2
P3: Different costing methods and its use to calculate net profitability
Cost: It refers to the amount which spends in manufacturing something that will be sold or
retain to meet the requirements of an organisation. It consists of two types which includes
marginal and absorption costing method. Thus, AIRDRI LTD. need to use these methods while
calculating their net profitability. Here are the brief description of these two costing methods:
Marginal costing: It is also termed as variable costing due to allowing only variable cost
to include in the calculation process of net profitability. It is usually adopted by small and
medium sized organisation as this method facilitate them to show high profitability in their
financial statements so that maximum number of investors will be easily attracted
Absorption costing: It is also termed as full costing method due to including both fixed
and variable cost in the calculation process of net profitability. It is most usable method by large
sized organisation as this method allows them to show actual profitability under their financial
statement so that loyal shareholders will be easily retained with company for longer duration
(Absorption costing, 2018).
AIRDRI LTD. company need to adopt suitable costing method according to their main
objective and vision. For this, the accounting manager need to use both these costing methods as
taking examples so that the corrective decision could be made in respect of using costing method
to calculate their net profitability. Here are the calculations of net profitability by using these two
methods:
Calculation of profit using marginal costing:
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Calculation of profit using absorption costing:
7

Interpretation: From the above calculations it has been analysed that while using
marginal costing organisation have attained profit of 5200 for two months. While calculating
profits from absorption costing the profits were 6000 for two months.
LIFO (Last in First Out method):
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AVCO(Average cost Method):
Interpretation: While using LIFO method the closing units were valued at 3.75 and
while using and while using AVCO method it was valued at 3.45. This information is used by
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managers in decision making as it helps to determine the cost. From both the methods AVCO
should be used by company as it shows less cost as compare to LIFO.
M2: Management accounting techniques and financial reporting documents
The board bookkeeping methods are progressively helpful to keep up money related
announcing archives and articulations, for example, benefit and misfortune a/c, monetary record,
income explanation and so forth. Airdri Ltd.d can distinguish its real monetary position just
through utilizing bookkeeping instruments and methods, for example, fiscal report investigation,
cost bookkeeping framework.
D2. Financial reports which applies to interpret many business activities
Financial reports are the reports which are required to be prepared by every organisation.
Company like Airdri Ltd. must focus on preparing the financial reports in order to determine
their level of performance. Financial reports consists of profit and loss account and the balance
sheets which interpret about all the financial transaction that has been made in business for
carrying out their activities. It also helps the business in estimating the amount of money to be
invested for performing the business activities.
TASK 3
P4: Budgetary control tools along with its benefits and drawbacks to an organisation
Budget-
It is a method in which revenues and expenditures are estimated for future course of action. This
is a method to forecast the expenditures and income which can be generated in future in a
specific period of time. This is considered as written and estimated financial plan for a specified
period that is mainly considered as one year. This is prepared in the measurable term and this
includes estimation of sales and revenue which will company generate in future. The AIRDRI
LTD. company is using this planning tool to allocate the amount of fund where company is
required to invest. This provides a brief summary of estimated expenditures and incomes which
becomes a proposal for investment and it shows the amount of fund require to operate the
business (Nilsson and Stockenstrand, 2015).
Budgetary control refers to the process of controlling the activities of manager of the
company so that they can utilize the given budget and this allow the Airdri Ltd. to control the
cost of the operations of the company in a specified accounting period. This allows Airdri Ltd.
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to prepare their financial statements and the standard performance criteria and it allows the
comparison of actual result with the budgeted result.
There are various type of budgets which are used as a planning tool for the company which are
described as follows-
Zero based Budgeting- This is a method of budgeting which involves the allocation of
expenses that is justified for particular period. This start from a Zero base as the previous
allocation of expenses are not considered while preparing the current. The need of defining
expenses is analysed after analysing each function of the company. This type of budget
undertakes the need of the future period and it does not get affected by the increase or decrease
in the expense of previous year budget. This allows Airdri Ltd. to form strategic goals and cost
are combined and then it is measured with the current and budgeted result (Otley, 2016).
Advantages-
 This allows the manager of the Airdri Ltd. can think about each rupee spent on it in every
specified period. This also benefits through justification of operating expenses and allows
to find out which areas are generating revenue.
 The expenses of the Airdri Ltd. can be emerge or occur at any time and budgets protect
them from increasing the cost of expenses through specifying the additional expenses
early. This can prevent from it if only it is used accurately.
Drawbacks-
 This is the major drawback of using this technique is that this budget only targets
expenses for short term by shifting the resources in various areas of the company which
can generate more revenues in the next upcoming years. But the Airdri Ltd. cannot
directly view for the long term investment which will affect the financial strength of the
company and might be company wont be able to generate revenue (Renz, 2016)
 This tool is a resource intensive which means it require lot of time and effort to justify
and review the expenses instead of modifying. As the expenses are allocated according to
the future need of business.
 This process can be manipulated by the Airdri Ltd. to acquire more resources so if this
happen it will lead to change in their culture where there is low amount of cooperation.
Fixed budget- This is a written financial plan which do not vary with the change in
accounting period and it does not consider any changes the changes occurring in the activity
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level. Airdri Ltd. uses this planning tool when they are operating in the industry where there are
less variations and the revenues can be expected for a particular period. The formation of this
budget is influenced by the result of previous year. Airdri Ltd. using this budget means that they
are regularly dealing with high variations of actual and budgeted result. This budgeting is used
by the company to get following-
Advantages-
This is a major advantage to use this type of budget that it is easy to use and implement
as it does not require to get updated regularly in carious accounting periods. This offer a strong
vision to Airdri Ltd. to analyse their total cost and estimated profit for the future period and it
can be over or under estimation so the changes can be made easily. This allows companies to
control their cost and can take smart decisions (Ruch and Taylor, 2015).
Disadvantages-
The main drawback of this type of budget is there is no flexibility as the expenses can not
be vary in relation with changes in accounting period. This method is not appropriate when
organisation is operating in a industry where regular changes takes place. This can impact
negatively to Airdri Ltd. revenue generation and it is based on previous data so accuracy cannot
be relied.
Variance analysis- This is a tool which is used to determine the variances between actual
and standard performance. This analysis is used by Airdri Ltd. to control the performance
efficiency of their employees. This is an effective planning tool when the amount is static and
any instant change will lead to a big variance. This involves the formation of a statement of the
result which is different from the expectations and a interpretation is formed to show that why
this deviation has occurred (Senftlechner and Hiebl, 2015).
Advantages-
 This planning tool allow Airdri Ltd. to measure the performance of their employees
through the use of accounting information and bad or favourable results are calculated.
This is a good tool to analyse the performance and then it can be improved.
 This allow Airdri Ltd. to held responsible to the person as it includes identification of
variance in performance which made them able to put responsibility upon the individual
and they can use their variance as a lesson and can improve that for the future period.
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 This allows the management of Airdri Ltd. to derive the attention on the major areas
where planning is required.
Disadvantage-
 If the standards are set wrong the it can affect company performance negatively as it will
decreases the motivation level of staff.
 If the manager of Airdri Ltd. will buy inferior goods which will increase the usage of
material more than the estimated which will increase the standardised expense in the
budget.
M3. Usage of different planning tools for preparing and forecasting budgets.
To control the cost and expenses that are not mentioned under the estimated budgets it is
necessary for the business to use different tools such as contingency tool, forecasting tool etc. It
is also essential for the business of Airdri Ltd. to use these tools in order to reduce their cost of
operations and carrying the business activities within the budgets that has been allotted. For
example, forecasting planning tool help management to sort proper idea of all the expenses that
are going to be incurred in the near future which will help the management in easy formations of
strategies and plans in advance (Wood, 2016).
TASK 4
P5: Comparison of how organisation adopt management accounting system so as to respond to
financial problems
Financial problems:
Each and every business performed several types of current operations that impacts on their
current performance. In order to conduct them properly an organisation requires sufficient
amount of capital that helps them to complete their operations. Along with this there are
various reason that face by Airdri Ltd. to manage their funds effectively is mention as
follow:
Cash flow problem:
This types of issue states that an organisation does not manage their funds due to which they
face difficulties to pay their debts, liabilities and creditors. It generates due to not earning of
expected income that reduces their profitability (Suomala and Lyly-Yrjänäinen, 2012).
Airdri Ltd. manage face this issue that are related with expenses of their production
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activities moreover it is compared with gains that is earned by organisation to enhance the
productivity of their operations.
Tools that are used by organisation to solve different financial issue
Financial governance
This refers to rules and regulations that is framed by management or authorities of Airdri
Ltd.. Moreover they develop different rules and regulations that need to be followed by
employees of organisation. Moreover they find different issues which are co-related with
financial problems of organisation. To overcome from different issue it helps managers to guide
their employees due to which they are able to perform their work in systematic way. This results
that it is easy for organisation to perform their function in ethical way (Soltes, 2014).
KPI (key performance Indicators ): This is the tools which helps the organisation to
evaluate their performance that has been performed in regard to achieve success or failure. KPI
are used to measure the success and failure of the organisation in achieving their goals . It also
helps the management in comparing the performance of their employees to their past
performance. By adopting This tool the company like Airdri can evaluating the performance and
can determine where they are lacking behind to achieve the success.
Among these two mentioned tools company must focus on adopting the KPI as this
would helps them in evaluating the overall performance of the organisation and will also support
them in analysing how skilled or unskilled their employees are in comparison to the financial
governance. As financial governance only provides the organisation with the rules and regulation
that is to be followed . But KPI enables the organisation to record all their data accurately which
would support business to enhance their productivity.
Management accounting approach
This is defined as an effective technique which is used to resolve all financial issue of an
organisation. Along with this they are used to store financial data at similar place because
information which is related with monetary terms is confidential. So it is mandatory for
management of Airdri Ltd. to ensure the safety of information as it plays an crucial role in
order to make effective decisions for the organisation. Moreover they also provide important
and accurate information to Airdri Ltd. due to which it is easy for them to retain in future
for longer period.
Comparison between Airdri Ltd. and Morgan Sindall Ltd. Ltd.
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Basis of differences Airdri Ltd. Morgan Sindall Ltd.
Problem Management of risk is the major
problem that is faced by organisation
due to which there is negative impact
on their pre-planned activities. It
results that they face problems to
formulate effective policy for
organisation.
In Morgan Sindall limited cash
flow problem is the major
issue that impacted on the
performance of the
organisation. Further it also
creates restrictions on
managers to execute their
plans because of shortage of
funds.
Approach In order to overcome from the issue
of risk management. Airdri Ltd. uses
the approach of financial governance
that enhance the performance of
employees. For this they implement
employees efforts towards right
direction due to which it is easy for
them to deal with different
challenges that exists in market.
Financial governance tool is
the most effective method that
is adopted by management as it
leads them to complete their
goals within systematic
approach. For this they
delegates their roles and
responsibilities according to
the skills of employees.
M4 Analysis of how in responding to financial problems management accounting can lead
organisations to sustainable success.
Some kind of financial tools are used by Airdri Ltd. and its competitor Morgan Sindal Ltd.
In order to resolve their financial problems. These tools are key performance indicators, financial
governance and benchmarking. These tools will help the business in maintaining their
sustainability in the competitive market. Adoption of these tools for the business of Airdri Ltd. is
must in order to enhance their performance and production. On the other side company like
Morgan Sindal Ltd., Uses the financial tool i.e financial governance to identify their financial
problems as these tools are beneficial for the large scale business.
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D3 Various planning tools to resolve financial problems
Airdri Ltd. Needs to focus on using different management and planning tools to identify the
uncertainties and hurdles so that the company can work on these issues to facilitates smooth
working of the organisation. These planning tools will also help the business in executing their
activities within the budgets that has been pre determined in advance so that the company can
solve all the financial problems.
CONCLUSION
It has been summarised from the above report that management accounting plays a
significant role in the growth and success of an organisation by facilitating them to make
corrective decisions and plans after analysing the information recorded in the financial
statements. The management need to choose suitable costing method among marginal and
absorption. Along with this, to deal with financial issues there are different tools such as KPI,
benchmarking etc. which are required to adopt.
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REFERENCES
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Renz, D. O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
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Senftlechner, D. and Hiebl, M. R., 2015. Management accounting and management control in
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Soltes, E., 2014. Private interaction between firm management and sell‐side analysts. Journal of
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Online:
Absorption costing. 2018. [Online]. Available through:
<https://www.accountingtools.com/articles/what-is-absorption-costing.html>.
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