Management Accounting Report: Financial Analysis for Airdri Ltd

This report analyzes the management accounting practices of Airdri Ltd, a small manufacturing company. It covers essential aspects of management accounting, including different systems, reporting methods, and techniques. The report explores cost accounting, inventory management, and job costing systems, as well as methods like cost reporting, budgets, and execution reports. It delves into financial planning, statement analysis, and cost accounting techniques such as absorption and marginal costing. The report also examines the role of management accounting in responding to financial problems and its contribution to sustainable success. The report includes an income statement for the company and discusses how planning tools and budgetary control can help solve problems and support organizations. Finally, the report integrates management accounting within organizational processes.

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Explain management accounting and give the essential requirements of different types of
management accounting systems................................................................................................3
Explain different methods used for management accounting reporting.....................................5
TASK 2............................................................................................................................................7
Range of management accounting techniques............................................................................7
TASK 3............................................................................................................................................9
Budget as an important control tool............................................................................................9
TASK 4..........................................................................................................................................12
Management accounting to respond to financial problems.......................................................12
An analysis of how in responding to financial problems, management accounting can lead
organisation to sustainable success...........................................................................................13
An evaluation of how planning tools for accounting help to solve problems and support
organisations with sustainable success......................................................................................14
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Management accounting that also known as cost accounting, is an process for analysing
or evaluating business cost and operations for prepare financial reports, records and systems to
helps managers in taking appropriate decisions for achieving goals and objectives (Arroyo,
2012). On other hand it is an act of making financial sense and costing data to get useful
information for management and officers within organisation. This report is based on Airdri
which is an small manufacturing company which produce hand dryers and other major
accessories that helps to give suitability to organisation to gain large consumer base. This report
is based on management accounting and their management accounting system. It also includes
methods for management accounting reporting and appropriate tools and techniques for cost
analysis by preparing income statement. Further it includes advantages and disadvantages of
types of planning tools and budgetary control and adaptation of accounting systems to respond
financial problems. Preparation of financial accounts and budgetary control are very important
factors that give important evaluation about stability of an organisation and their future growth.
TASK 1
Explain management accounting and give the essential requirements of different types of
management accounting systems.
Management accounting is an chain of activities that helps in analysing kinds of cost and
operations by preparing internal reports, keeping kinds of records that proved beneficial for
managers in taking important decisions. There are various kinds of roles of management
accounting that are as follows:
Managerial accounting helps managers and other one to take important decisions and it
also provides cost of goods and services in both condition whether product is profitable or not. It
helps in when organisation taking important decisions such as open an new venture and their
important budgetary decisions (Boyns, Edwards and Nikitin, 2013). It helps in comparing actual
decisions with planned performance and evaluation and gives important decisions for critical
evaluation in success of an organisation.
Long term and short term planning:
Management accounting helps in both long term and short term planning while taking
future decisions and plans. It facilitates at time of long term plans, strategic management and

their accounting and formulation of corporate strategy and at time of study of market trends and
relevancy.
Role in developing management information system:
Management accounting plays very important role at time of developing and taking long
term decisions making for forwarded to managerial staff or personnel at every level of an
organisation for taking important decisions.
Different management accounting system:
Management accounting system emphasis on collecting information and data with help of
external parties in which stakeholders, public regulators and lenders by following accounting
principles (Contrafatto and Burns, 2013). There are some kind of management accounting
system that vary from organisation to organisation and each system should be developed after
analysing needs of management that helps in taking important decisions.
The most basic types of management accounting system are:
Cost accounting system
Inventory management system
Job costing system
Price optimization system
Cost accounting system:
Cost accounting system that also known as product costing system which is an
framework used by organisations for estimation or evaluation of costs of products for
profitability analysis, inventory valuation with controlling cost. Calculation of accurate cost of
products and services are very much crucial with critical for Airdri ltd at time of profitability
operations. There are various kinds of cost accounting system that are fixed cost, variable cost
and opportunity cost with sunk cost that are important part for an organisational growth and
enhancement. With there are various costing techniques in which marginal costing, standard
costing with direct costing etc.. the main advantage of it that it disclose profitable and
unprofitable actions with guide for production policies.
Inventory management system:
Inventory management system helps in track the goods and services by entire supply
chain or by business operations operates under inventory management system (Grötsch, Blome
and Schleper, 2013). In that system it covers from production to retailing, warehousing to

shipping and until movement of stock to end user. It helps in moving of parts of operations for
taking better decisions and invest money at appropriate time frame.
Job costing system:
Job costing is an system that use for assigning and accumulating cost of manufacturing
for an individual unit. It is useful in case of when various items should be produced that are
totally different from each other.
Price optimization system :
Price optimization use for mathematical evaluation or analysis for determine response of
consumers to different prices related to product and services by different channels. It helps in
determination of prices that helps in best meet their objectives and goals for operating profit.
These various management accounting systems are very much essential for an organisation at
time of launching a new product and services with taking crucial decisions. There are some
major benefits of price optimization system that are revenue generate from it helps in give
growth and expansion of a business and gain more insights for the various kinds of pricing
strategies.
Explain different methods used for management accounting reporting.
Managerial which also known as management accounting, that concentrates on receiving
data and information by financial accounting (Hoque, Covaleski and N. Gooneratne, 2013). It
proved useful in preparing financial statements, earning statements and cash flow statements and
also balance sheet which are essential for any organisation in evaluating viability of their project.
There are kinds of methods for evaluating accounting reporting that are as follows:
Cost reporting:
Managerial accounting helps in estimation of price of products and services. It estimates
by completing whole fresh pricing, over head cost and labour cost and any other pricing
considerations. In that entire cost divided into total items created in it, whole data and
information that enables managers in viewing pricing of products and selling cost. It is an
important source for plan and manage income limits of an organisation. The main benefits of
cost reporting that it gives financial confidence and job management with that organisation can
coordinate each and every activity in better way with it supports claims to gain contractual
claims in better way.
Budgets:

One of most important management accounting tool that is planning of spending on plans
so that spending should be controlled. Budgets are mostly created by utilizing previous financial
plans for accumulating future plans and projections. An organisation spends their money on list
of income and expenditure so that evaluation of each and every factor are very important for
Airdri ltd. The major benefits of budget that it gives control over money and helps in focused on
money goals and objectives so that organisation can control each and every activity in
coordinated way to reach at desirable goals and objectives in better way.
Execution reports:
Management and their accountants avail various spending plans for contrasting income
and expenditure with planned sums (Lavia López and Hiebl, 2014). An organisation after
implementing new budgets and policies bring changes for intended should be analysed and entire
data are listed on report of their performance.
Benefits of management accounting:
There are kinds of advantages of management accounting that are as follows:
 It helps in measuring or evaluating actual performance by comparing budgets of an
organisation so that desirable goals should be achieve.
 It also helps in management in a way that can maximise return of capital employed which
is an important attribute for an manufacturing organisation.
 It enables in preparing budgeting and planning of works and activities by applying
various applications in context of Airdri ltd.
Integration of management accounting system and management reporting within
organisational process:
Management reporting Integration with organisational process
Budget report Budget report is integrate with organisational
process in context of Airdri limited to get
accurate financial stability. In that budget that
helps in predicting income and expenditure of
each term to eliminate risk factor.
Performance report Performance report shows performance level

of each individual by smooth functioning of an
individual (Leitner, 2013). It helps in
identifying skills of an individual in taking
appropriate decisions and building strategies.
That provides attributes in analysis of
individual performance.
Inventory and manufacturing report Inventory is an important tool that helps in
evaluation of each attribute such as stock,
income and expenditure with carrying cost of
it.
TASK 2
Range of management accounting techniques.
In management accounting to get desirables outcomes organisation have to apply
different tools and techniques that are as follows;
Financial planning:
The main task of financial planning is to maximise profits and consumer base. Its main
motive to achieve sound financial planning and their coordination (Lukka and Vinnari, 2014).
Therefore it is one of most important tool for achieving goals and objectives in proper way. That
tool use by Airdri limited to record all transactions in proper way to accord with changes.
Financial statement analysis:
Profit and loss accounts and balance sheet consider as an important financial statements
of an organisation. It should be analysed in different periods of time. It enables in analysing
activities of management and growth of business. This can be done through common size
statements, financial accounting and ratio analysis.
Cost accounting:
Cost accounting is one of important tool that helps in cost data by product wise,
department wise, branch wise and many more. It compared with predetermined goals and
objectives, by comparing two cost helps to Airdri limited to decide the factors that helps in bring
difference in cost.

Income statement:
Income statement or also known as profit and loss account which is an financial
statement of an organisation that shows revenues and expenses in an definite time period. It
denotes towards in which way revenue should transform in net income or profit (Miller and
Power, 2013). Income statements should be prepared after using various kinds of costing that are
as follows:
Absorption costing:
Absorption costing includes all kinds of manufacturing cost at time of production and
consumption. It is the cost of finished goods and services and includes various kinds of cost such
as direct material cost, direct labour, manufacturing overhead, fixed manufacturing overhead etc.
absorption cost requires in both external financial reporting and income tax reporting.
Marginal costing:
Marginal cost in which increase or decrease in total cost of production run for making an
additional unit of an item. It calculated at time when it reached at break even point or saturation
point (Modell, 2014). Marginal cost are variables cost in which labour and material cost consist
in it and estimated proportion of fixed cost also includes in it. With the help of these two types of
cost, income statement should be calculated that are as follows:
Absorption costing
ABSORPTION COSTING:
BUDGETED PROFIT OR LOSS
STATEMENT
PER UNIT TOTAL
£ £ £ £
SALES 50 800000
COST OF PRODUCTION
DM 10 180000
DL 20 360000
VOH 5 90000
FOH 5 90000
40 720000
OPENING INVENTORY 0

CLOSING INVENTORY -80000
COST OF SALES -640000
STANDARD PROFIT 160000
ADJ. FOR UNDERABSORPTION -10000
BUDGETED PROFIT 150000
Marginal costing
VARIABLE COSTING: BUDGETED
PROFIT OR LOSS STATEMENT
VARIABL
E
COSTING:
BUDGETE
D PROFIT
OR LOSS
STATEME
NT SEP
2019
VARIABL
E
COSTING:
BUDGETE
D PROFIT
OR LOSS
STATEME
NT SEP
2020
VARIABL
E
COSTING:
BUDGETE
D PROFIT
OR LOSS
STATEME
NT SEP
2021
VARIABL
E
COSTING:
BUDGETE
D PROFIT
OR LOSS
STATEME
NT SEP
2022
PER UNIT TOTAL
£ £ £ £
SALES 50 800000
COST OF PRODUCTION
DM 10 180000
DL 20 360000
VOH 5 90000
FOH 35 630000
OPENING INVENTORY 0
CLOSING INVENTORY -70000
COST OF SALES 35 560000
CONTRIBUTION 15 240000
FOH PRODUCTION -100000
BUDGETED PROFIT 140000

Sales=
Fixed cost+
desired
profit/
contribution
per unit
Fixed cost+
desired
profit/
contribution
per unit
Fixed cost+
desired
profit/
contribution
per unit
Interpretation:
from the above calculation it has been summarised that company get net profit by both
the above mentioned method in income statement. By using absorption method organisation sell
minus variable cost on other hand sales minus variable expenses and after all organisation get
great profit ratio which is an important indicator of organisational growth and enhancement. On
other hand sales denotes towards fixed cost plus desired profit and contribution per unit.
Direct variable cost:
Direct variable cost consist of raw materials which increase as total as more units of
production should be manufactured. Cost that are associated with department should be direct or
fixed.
Fixed cost with elements:

Fixed cost are business expenses that are not rely upon the level of products and services
produced by the business. It should be time related in which major tools consist of interest or
rents that paid per month.
Difference in marginal cost income statement and absorption cost income statement:
There are some differences while preparing income statement of marginal and absorption
that reflect profit through which no sales has been made. That happen due to the fixed cost of
manufacturing overheads on other hand variable statement show loss as no sales.
TASK 3
Budget as an important control tool.
Budget is an quantitative statement, for an definite time period in which includes
planned revenues, expenditure and assets, liabilities and cash flows. It is an process of designing,
implementing and controlling budgets (Nielsen, Mitchell and Nørreklit, 2015). Budget gives an
overview about organisation and its various works and activities to control various works and
activities.
Budgetary control:
Budgetary control is an kind of tool that helps managers to perform in an structured way.
In budgetary control managers evaluates financial goals and objectives by comparing with actual
performance for an organisation. In budget various kinds of planning tools and techniques
includes that are very much crucial and helps in performance of management and their key
members. In that controlling tool managers build kinds of budget and evaluate performance
accordingly, apart from that it helps in giving estimation of future income and expenditure that
helps in making strategies and attain goals. In scenario of Airdri that successfully avails
budgetary control measures that helps in bring estimation of future revenues and cost for
performance evaluation. In budgetary control consist of various tools and techniques that are as
follows:
Forecasting tool:
Forecasting tool is an tool which helps to business to protect their works and activities
from uncertainty. Future activities should be secure by adopting assumptions that totally based
on forecasting of works and activities (Stechemesser and Guenther, 2012). Forecast not actually
implement but estimation should be made with its estimation should based on working in past,

nature of an organisation and some other factors. That kind of forecasting methods and tools in
which expert opinion method, delphi method and technique etc.. in case of Airdri apply kinds of
tools to predict their future plans and policies and their advantages and disadvantages are as
follows:
Advantages:
 The forecasting tool enables in identification of activities that proved advantageous for an
organisation and it helps in allocation of kinds of resources in effective manner. It helps in accessing needs and wants of consumers and produce products accordingly.
Disadvantages:
 Forecasting totally based on past performance of an organisation and sometimes it proved
hazardous for them to reveal all past knowledge and information, in that condition
predication is not accurate.
 Forecasting require resources and time for reach at desirable goals and objectives and it
hinders self interest of an organisation.
Fixed budget:
Fixed budget or static budget not change according to change in sales or quantity. It is
most suitable for activities which not fluctuate in future. It is one of most tool for budgetary
control and use for remain fixed in future. In case of Airdri use that tool for activities that not
change in future frequently. So it helps in concentrating works and activities that are important in
nature and not require to update frequently and also save time.
Advantages:
 Fixed budget is easy and prepare frequently because these kinds of budgets are easily
track performance of an organisation without any kind of hurdles. It not obligatory to
update it every month. It also enables to organisation for planning to attain future goals and objectives.
Disadvantages:
 It is one of most significant kind of budget in which variations not occurred in budget due
to sales or any other factors.
 The schedule or framework of that budget based on past works and activities that
sometimes not possible for an organisation.
Flexible budget: