Detailed Management Accounting Report for Airdri Company

This report provides a detailed analysis of management accounting practices within the Airdri organization, a manufacturer of warm air hand dryers. It explores the essential requirements of different management accounting systems, including job-costing, cost accounting, inventory management, and price optimization systems. The report also examines various methods of management accounting reporting, such as budgeting reports, inventory and manufacturing reports, job cost reports, performance reports, account receivable aging reports, and order information reports. Furthermore, it discusses the benefits of management accounting systems and their integration with organizational processes. The report delves into cost analysis techniques, including marginal costing and absorption costing, to prepare an income statement and analyzes the advantages and disadvantages of different planning tools. Finally, it addresses how organizations adapt management accounting systems to respond to financial problems, emphasizing the role of planning tools in achieving sustainable success.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essential requirements of different types of management
accounting systems......................................................................................................................1
P2 Various methods used for management accounting reporting...............................................3
M1 Benefits of management accounting systems and their application.....................................4
D1 Management accounting systems and management accounting reporting is integrated.......5
TASK 2............................................................................................................................................5
P3 Costs using appropriate techniques of cost analysis to prepare an income statement...........5
M2 Range of management accounting techniques and produce appropriate financial reporting
documents...................................................................................................................................7
D2 Financial reports that accurately apply and interpret data.....................................................8
TASK 3............................................................................................................................................8
P4 Advantages and disadvantages of different types of planning tools......................................8
M3 Various planning tools and their application for preparing and forecasting budgets.........10
TASK 4..........................................................................................................................................10
P5 Organizations are adapting management accounting systems to respond to financial
problem.....................................................................................................................................10
M4 Financial problems, management accounting can lead organizations to sustainable success
...................................................................................................................................................12
D3 Planning tools for accounting respond appropriately to solving financial problems..........12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting is a provision of financial data as well as advice to firm for use
in company and its development. It is a procedure of preparing management accounts and also
reports which give accurate statistical and financial information needed through managers to take
short-term decisions. Management accounting helps in analyzing costs and operations of
business to prepare an internal financial records, account and report that help managers in
decision making. It is process of determining, measuring, recording and also representing
financial information that is used internally through management for control and decision
making. This present report is based on Airdri organization. It is a manufacturer company and
designs warm air hand dryers, minimize energy consumption, sound levels and reliability have
specifications with Airdri brand. This report will be discuss about concept of management
accounting and also requirements of various kinds of management accounting systems and along
with this management accounting techniques will also be applied (Abdelmoneim Mohamed and
Jones, 2014). Benefits and disadvantages of various types of planning tools used for the purpose
of budgetary control will be discussed in given assignment. There will be discussion about the
different methods used for the management accounting reporting.
TASK 1
P1 Management accounting and essential requirements of different types of management
accounting systems
Management accounting is an act of the making sense of costing and financial data along
with converting that data in to useful information for officers and management in company. It is
provision of non- financial and financial decision making information or data to managers. It is
presentation of accounting information in context to develop better policies to adopted through
managers and also assist the daily activities. It is helpful for management to perform all functions
consisting the planning, organizing, directing, staffing and controlling. Airdri business firm used
to explain accounting methods, techniques and systems with special ability, help management to
perform tasks for increasing profit level (Bovens, Goodin and Schillemans, 2014). It assists in
producing reports for internal stakeholders of company. It is related to use of the gathered
accounting data through cost and financial accounting for preparation of policies, decision
making and control through management. The accounting methods of management help in
1

determining the cost incurred in production and inventory management by an organization.
There are various kinds of management accounting systems mention below:
Job- costing system- It is a system for assigning the cost of manufacturing to each
person product while monitoring the expenses. Airdri company can use this system when goods
are to be identical in order to keep track of the order expenses (Chan, Wang and Raffoni, 2014).
It is related with evaluation of cost that included in job performed through staff members or an
organization. The management of Airdri business firm use this kind of system to measure cost of
every task of firm.
Cost Accounting System- The cost accounting system refers to framework used through
companies in order to examine cost of goods for inventory valuation, cost control and
profitability analysis. It is used through Airdri firm to identify actual cost that included in the
process of production. It is helpful in give a detailed information about cost of various
departments.
Inventory Management System- This is a system that tracks finished goods in its entire
supply chain or in its business operation chain, which covers all operations like production to
retail, warehousing to shipping etc. This system assist in better decision making for investments.
Managers at Airdri Ltd. Focuses on the different stages of supply chain with the same objective
of sales at the end and profit to the organization. Inventory management system usually offer
features like bar-coding, inventory alerts, reporting tools, forecasting of inventory, and
accounting tools. These features may vary depending on the company needs and funds. This
method reduces physical audits, time and resources as well as helps in keeping automated
records of the inventory.
Price Optimization system- This system is used to control of resources costs. It is used
in deciding costs of many goods and services at a time (Cooper, Ezzamel and Qu, 2017). This
model is a mathematical system that calculates the variation in demand by the variation in prices,
then combines the collected data with the records of inventory levels to make changes in prices
to improve profit. This system acts advantageous for the companies still underdeveloped or
developing and helps in better decision making. This method at Airdri Ltd. assists in managing
fluctuations in demands, forecasting demand, developing pricing and promotional business
strategies, controlling inventory level, and to develop customer satisfaction.
2

P2 Various methods used for management accounting reporting
The management accounting report is a tool to understand about what is going in
business. It helps in preparing the effective or proper management report that counts on forecasts
in order to taking the business decisions in a better manner. It gives managers with the reliable or
accurate financial and statistical information (Fullerton, Kennedy and Widener, 2014). It
includes performance of every employee, budget related information, production costs, inventory
status and many others. These reports are developed through management of Airdri company for
making prepare policies, perform organizational activities and make better decisions which
depends on information. There are different kinds of management accounting reports mention
below:
Budgeting reports- It sets out plan to measure performance of Airdri firm while making
any evaluation regarding performance of every departments as well as their cost control. In
context to preparation of budget, actual expenses occurred in the previous period that has been
utilized. In this, budget reports are helpful in giving incentives to staff members of Airdri
business firm to enhance their motivation for attaining the set objectives with in given period of
time. The future budget is depend on budgeting reports which assists Aridri firm to integrate
efforts of different departments towards aim of an organization.
Inventory and manufacturing reports- Inventory report refers to manage inventory,
track inventory movement with in warehouse and get the visibility on various inventory
categories like those inventories which are on hold. On the other hand, manufacturing reports
gives information about processed physical units in departments along with manufacturing costs.
Aridri is a manufacturing company and it prepare these kinds of reports for making its process of
inventory and manufacturing efficient and effective. These reports include cost of labour,
wastage and per unit overhead which are related with inventory that gives the managers for
compare among various assembly lines (Lavia López and Hiebl, 2014). It is helpful for Airdri
company to provide opportunities which can exploited through different departments and also
their staff members.
Job cost reports- These are related with determining costs, expenditure and also profit of
each specific job. Under this, an evaluation is made about earning an aspect of projects so that
Airdri company can introduce its efforts on minimum profitable activities of firm in a proper
manner. This type of management accounting report examine cost while project is on the
3

progress by taking care the wastage areas for making project more workable and profitable. It is
helpful for Airdri to give necessary information about existing status of job and can aid in
estimate about finish of job from revenue and cost effectively.
Performance reports- Under this, differences are calculated in comparison of the actual
outcomes with the budgeted performance by analyzing information related to performance
reports (Hiebl, 2014). Generally performance reports are prepared on the yearly basis but can
also be prepared on quarterly or monthly too. It helps in compare the budgeted and actual
amounts to control costs for departments of Aridri and its managers.
Account receivable aging report- It refers to report that lists the invoices of unpaid
consumers and unused credit memos through date ranges. Aridri make the proper invoice
segregation for balances of consumers to know about how long they owned. It helps in point out
problems which are associated with collection process of firm. It assures in minimizing the old
bad debts and also maintain liquidity of an organization.
Order information report- It is helpful for management of Airfri business firm to see trends
in its business effectively as well as efficiently. In addition to this, different kinds of reports are
developed under order information report that assists in integrating the operations of management for
attain minimum cost on the order placing as well as management (Mistry, Sharma and Low, 2014).
M1 Benefits of management accounting systems and their application
There are different advantages to management accounting systems:
System Benefits
Job costing system  It is helpful for Airdri company to
estimate all kinds of cost by process of
manufacturing.
 It assists in evaluation of quality of
work.
Cost accounting systems  Airdri company can measure efficiency
in the process and helpful in improving
system.
 It gives required information for the
planning.
4

Price optimizing system  It aids in increasing operating profit.
 Identify consumers attitude that
depends on various prices.
D1 Management accounting systems and management accounting reporting is integrated
Types of Reporting Integration with organisational processes
Budgeting reports An integration among organisational
processes is concerned with Airdri company
and budgeting reports develop path for
activities of firm to focus on targeted
outcomes.
Job cost reports Activities and operations of Airdri firm
should directed towards attain cost reports
and objectives to make easy pricing strategies
(Messner, 2016).
Performance reports An integration among this reporting and
organisational process can give management
with sales analysis to generate different
reports to track consumers.
TASK 2
P3 Costs using appropriate techniques of cost analysis to prepare an income statement
Cost: Cost refers to money value which has been used to manufacture something. It is an
amount that has to be given or paid up in context to get something. If company wants to acquire
large market share then it need to minimize its products cost (Nielsen, Mitchell and Nørreklit,
2015). It will be helpful in attract large number of consumers at market place. It will help in
enhance the market share of company.
Airdri is small size manufacture firm and it produces the hair dryers. As comparison to its
strong competitors, company minimizes cost of its services and products. It helps in provide the
competitive benefits for company and through this it can retain at market place for long period of
time. There are two different kinds of costs mention below as above:
5

Marginal costing- It refers to one additional output unit. It is used to identify optimum
production quantity for an organization. It minimize or maximize in total production cost run for
making one additional unit. This cost is the variable cost that is concerned to raw material and
labour. Under this, managers try to identify actual cost of produces additional units. The
marginal cost is high as comparison to the actual cost (Otley, 2016).
Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue (55 * 600) 33000
Marginal Cost of goods sold: 9600
Production (800 * 16) 12800
closing stock (200 * 16) 3200
Contribution 23400
Fixed cost ( 3200 + 1200 + 1500 ) 5900
Net profit 17500
Absorption costing- It means that all costs of manufacturing are absorbed through
produced units. It is a cost of managerial accounting cost methods in which all expenses are
related with the manufacturing specific product. This costing is used through different to ensure
about cost that included in manufacturing of different units. Airdri company used this cost
methods to identify the actual cost of production.
Calculation of net profit by using absorption costing method:
Particulars Amount
Sales (55 * 600) 33000
Cost of goods sold (23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses (1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break even analysis- It is useful in identification of production level or targeted desired
sales. This method is used by Airdri company to measure break even point where it earns profit
that is equal to incurred cost in manufacturing of unites. It is a situation of no profit and no loss
for firm. Variable cost, total sales and fixed cost are helpful in calculate break even analysis
(Renz, 2016).
A. Total number of products sold:
6

Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
B. Calculation of break even point in accordnce 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 to reach desired profits of 10000:
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety- It refers to investing principle under which investor only buy
securities when the market price is below its intrinsic value. It is is difference among BEP
(Break even point) and actual sales. It is necessary for business because it can aid management to
anticipate about sales minimization.
D. Calculation of margin of safety when 800 units are sold:
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
M2 Range of management accounting techniques and produce appropriate financial reporting
documents
There are three different techniques of management accounting such as historical, marginal
and standard costing techniques. Historical technique is helpful for measure actual amount of
liabilities and assets which are already recorded in balance sheet. Standard costing is used to
measure variation in forecasted as well as actual budgets which help in measure actual
performance of firm. Marginal costing is used to analyse decrement or increment for
manufacturing additional unit.
7

D2 Financial reports that accurately apply and interpret data
It has been analyzed from mentioned calculation that managers of Airdri company found
that the marginal costing is better option for firm to identify net profits. In calculation of
absorption and marginal costing, it shows difference £1825 in profits. Net profits from marginal
costing technique are £17500 and from the absorption costing technique profits are £15675. The
break even sales of Airdri is £20000 when sales is 500 units.
TASK 3
P4 Advantages and disadvantages of different types of planning tools
Budgetary control- It refers to process for the managers to set performance as well as
financial goals with budgets, compare actual results, adjust performance etc. It helps in know
about how managers of Airdri company use budgets for monitor and also control the costs or
operations in accounting period. It is a procedure of identifying different actual outcomes with
the budgeted figures for firm for future (Senftlechner and Hiebl, 2015). Company can set the
standards for comparing budgeted figures with actual performance in context to calculate
variances. It is system of controlling the cost that consists budget preparation, coordinating
departments and also establish responsibilities to attain more profit level. The main objective of
budgetary control is to planning, enhance efficiency, financial planning, frequent comparison etc.
of an organization. The manager of Aridri business firm is liable to control budgets because it
aids to prepare a plan as well as reserve funds for deal with the future risks which can be occur.
There are three different kinds of planning tools in budgetary control mention below which use
by Aridri company:
Forecasting tools: This tool is related to forecasting the process of an organization in an
effective or better manner. It is helpful for financial managers of Airdri business firm to forecast
the future expenses for an instance reserve funds as well as promotional expenses. With the help
of identifying all expenses, firm will control them in a proper manner in future and also will able
to deal with the any crisis that can be occur in the future (Siverbo, 2014). In addition to this tool,
it is helpful for management of Airdri company to anticipate the future events which depends on
current trends and past events.
Advantages Disadvantages
It is helpful in forecast all the future It is fully depends on the previous data which
8

expenditures of firm. is not reliable in proper manner.
It aids the managers of Aridri firm to reserve
some funds for future expenditure.
It does not forecast the future properly and
accurately.
Contingency tools: It is related with the negative events which can be arise in future.
Mainly, this tool is used through management of Aridri business firm to identigy any type of
unfavourable vents which can be occur in future (Strauss, Kristandl and Quinn, 2015). With the
help of this tool, management will be prepare for those events whih can impact on operational
activities along with proces sof implementation of company.
Advantages Disadvantages
It helps in given possible ideas for future
events which can develop negative impact on
operations.
It only works in contingency time.
It aids managers to deal with the risk or events
which can be negatively impact.
It is difficult to execute this tool in company.
Scenario tools: This tool is related with determination as well as evaluation of the future
events and then develop the professional framework in context to explore the events. According
to current and previous data, management of Airdri business firm can make an assumption for
for the upcoming events which affect on the business environment (Tucker and Schaltegger,
2016). This scenerio tool is used by Aridri company to determine the particulat consequenced
which can be happen in the future.
Advantages Disadvantages
It is helpful for manager of company to
determine major problems which may be
impact on business operations.
It is not useful and beneficial for small
business firms such as Airdri company.
It helps in facilitate the long term planning
along with process of decision making.
Rapid change in market trends make execution
of this tool more complex.
9

M3 Various planning tools and their application for preparing and forecasting budgets
There are three different planning tools which Airdri company use such as forecasting,
scenario and contingency tools. These all are helpful for management to forecast future
consequences. Planning tools are helpful in identify the unfavorable and favorable future events.
With the help of these tools, company can deal with any kind of uncertainties in future. They
gives valuable and accurate information or data to managers which help them to take the better
decisions (Tappura and et. al., 2015).
TASK 4
P5 Organizations are adapting management accounting systems to respond to financial problem
Conditions of new business have developed over previous years where the information
and data has been regarded as most necessary resource in order to measure performance of
company, determining financial issues concerned with variances which are found in the
performance indicators. Several business firms are facing many financial problems for an
instance insufficient funds, insolvency, improper money management, high debt level and many
others. Airdri company conduct its business on small scale and it wants to expand its business in
future. In order to expand its business operations at large scale, this firm will need more finance.
It can led to use of different techniques of management accounting which set benchmarks and
use financial key performance indicators to evaluate performance of firm for sustain long period
of time. In implementation and also planning different business activities, Airdri company will
budgetary control to focus on achieve set standards for targeted outcomes in context to fulfil set
objectives (van Helden and Uddin, 2016). For dealing with the financial issues, Airdri firm
follows financial governance techniques, key performance indicator and benchmarking. These
different tools are mention below as above:
Key performance indicator- It is used to analyse success of staff members, company
etc. in addition to meet objectives for the performance. With the help of this, firm can measure
its performance and will be helpful in decision making of company. The key performance
indicators are non- financial and financial measures which Airdri company use to reveal its
success in attaining long term objectives. Aridri firm faces financial issue concerned with
unnecessary expenditures. Various kinds of key indicators use by company to resolve problems
given below:
10