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:
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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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