Airdri Ltd: Management Accounting Report, Cost Analysis and Budgeting

This report provides a comprehensive overview of management accounting, focusing on its application within Airdri Ltd, an electrical manufacturer. The report begins by defining management accounting and outlining the requirements of various management accounting systems, including price optimizing, cost accounting (job order and process costing), and inventory management systems (LIFO, FIFO, AVCO). It then explores different methods used in management accounting reporting, such as budget reports, account receivable aging reports, job cost reports, performance reports, and order information reports. The report further delves into cost analysis techniques, comparing absorption and marginal costing methods, and illustrating their application with calculations. It also defines and analyzes the advantages and disadvantages of different planning tools used for budgetary control. Finally, the report examines how organizations adapt management accounting systems to address financial problems, offering valuable insights into financial decision-making and control. The document is a student's report, contributed to Desklib.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
P1 Describe about the management accounting and give the essential requirements of
different types of management accounting systems....................................................................3
P2 Define different methods used for management accounting reporting..................................4
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs...........................................................................6
........................................................................................................................................................10
P4 Defined advantages and disadvantages of different kind of planning tools which are used
for budgetary control.................................................................................................................10
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems.....................................................................................................................12
CONCLUSION..............................................................................................................................15
REFERENCE.................................................................................................................................16
.......................................................................................................................................................17

INTRODUCTION
Management accounting is the term which is used by various organisation to analysis its
business activities and also provide financial data and resources to the managers in order to take
an effective decisions. It is used by the organisations to identify the internal information so that
they can improve and enhance the overall performance. This report is based on Airdri Ltd which
is an electrical manufacturer and client of Financial Conduct Authority. In this report, it will be
discussed about the various types of management accounting system and how these are essential
for any organisation. Along with this, different methods which are used for management
accounting report and also it will be understand that how an organisation can analysis their cost
for preparing a appropriate income statement. Different type of planning tools for budgetary
control and defined the benefit and disadvantage of them. At the end, will understand
management accounting to solve the financial issues.
P1 Describe about the management accounting and give the essential requirements of different
types of management accounting systems
Management accounting is also knowns as managerial accounting and cost accounting
which is used by the organisations to identify the business cost and operations so they able to
prepare internal financial reports, accounts, and records which helps them to take an effective
decisions. On the other hand, management accounting system help the organisation to control on
the organisation activities, improve overall performance, and maintain the development process
so they able to take an effective decision. This system help the Airdri Ltd to maintain their
organisational activities and create healthy environment in the organisation. There are described
below about the various type of management accounting system which are require to adopt by
the Airdri limited to achieve their goals and targets:
 Price Optimising system: It is defined as a process which is used by an organisation to
find out the suitable pricing of their products and services so the customers will able to
pay comfortably. It tells the organisations that how the demand change with the changes
of the pricing level. This system tells the Airdri Ltd that they should decide the price
according to the market segments and they should focus on that analysis that how the
target customer will react on the price changing strategy. It will help to decide an
effective price so that they able to attract a rang of customers in their services.

 Cost accounting system: This accounting system is used by the organisation to decide
an appropriate cost of their products and services so they able to attract a large number of
customers and maintain their profitability. The main purpose of this system is to control
on the cost which helps them to know that which products is profitable and which is not
so they can decide the price accordingly. There are two types of cost accounting system
which are described below: -
Job order costing: This system is used by those companies who are engaged in the
production of specific and unique products. It helps an organisation to know their every
individual activity cost. It helps them to know the difference between their estimated cost and
actual cost so they can finish the gap between them and can maintain their profitability.
Process costing: This is used by those companies who are indulge in that production
department which contains a long process. So, it will help the to know their manufacturing of the
each department.
 Inventory management system: This system is related to the proper management of
material, work-in-process goods and finished goods in order to satisfy the customers
needs and earn a great profitability. It is important for any organisation to continue track
their inventory so they able to meet their customers demands. This system is used by the
Airdri Ltd to track their inventory time to time and help them to manage advance
inventor according to the requirement and also helps them to save their scrape cost.
There are various kind of inventory management system which include last in first out
(LIFO), first in first out (FIFO), and average cost inventory method (AVCO).
P2 Define different methods used for management accounting reporting
Management accounting reporting: Management accounting is a mixture of business
skills , management, finance, and accounting techniques that increases the goodwill of the
company. It uses all sort of data of all types of business organisations around the globe .It
provides the business strategy, future risks and other factors for Airdri Ltd. It helps the managers
decide the costing of products ,by giving all sort of informations related to profitability,
production costing,factors influencing market. It is the big picture of the business these are
produced quarterly by Airdri Ltd to get a integral field of vision of the business. They help in
achieving the ultimate goals set by them. These include accounting, reporting, predictions, costs

and many more facts of the company which provides the insights of the things and capture the
market.
Methods:- There are various methods of accounting report which are described below:-
 Budget reports : These reports provide the outline of Airdri Ltd performance and
costing. It has various sections,these consist the income and sales data's,expenses of
annual year and the assets and liability of Airdri Ltd. New changes are mentioned in them
or any future predictions are also provided in these reports .It represents the budgetary
figures used and actual performance at the end of assessment year. These reports might
differ each time as per the goals to be achieved by the company. The budgeting helps to
achieve the deadline of attaining the goals and provide the budget for each department
divided every year.
 Account receivable ageing report: It is the key mechanism used by Airdri Ltd. It
provides credit to the consumers. The customer invoices and UN-utilized credit memos
sorted by their dates . It provides which invoice is on the verge of over due payment mark
and attached with the calling information of the customers. Its the statistical report
management of Airdri Ltd where first most column have the invoice of 30 days,next
column 60 days,then 90 days and final column is all prior to these invoices.
 Job costs reports: it gives the profitability and efficiency reports of Airdri Ltd by
comparing project reports and tracking them. Each department used for the business is
accounted of the expenses made on them and as per that how much profit they are
making for the company . Airdri Ltd uses months of detailed reporting in critical times of
controlling costs and using where more outputs are possible costs reports provide where
unnecessary money is being used and without much profitability.
 Performance reports: Airdri Ltd is very particular about these reports. As the previous
assessment year and current years reports are compared and if any adverse element is
repeated action is taken for it. It provides costs acquired by each project and its profitable
report. The employee's at Airdri Ltd are given feedbacks in their annual performance
reports. The project managers get the targets to be achieved current year. The government
also issue a annual report from these reports as public records of the performance of
company using these statics.

 Order information report: these reports show the unshipped orders report that is
required by the Airdri Ltd business associates,enterpriser information reporters are the
necessity for the proper management and tracking of the business workings. During the
fulfilment period of the orders from Airdri Ltd shipment to delivery are mentioned in
the reports. These show statistically the current situation of the orders and the information
about the order and estimated date for delivery. These reports are crucial to keep the
perfect records and seek them problem at the point where it takes the most time to
process and fix the bug within.
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs
Cost:- This term is indicated that amount which is paid by a person in order to get
something. On the other side, in the business cost is that amount which a company spends on the
producing the various products and services. The cost of its products and services is calculated
by the organisation so they can decide that price where they can satisfy their customers and also
earn profit. There are given below which is used by the companies to decide its products and
services costs:-
Absorption costing: This costing method is very useful for the organisations as it is related
to the overall cost of the production. In this technique the overall cost will be considered which
includes fixed and variable, which is occurring in the operational activities, processes, and
products. This technique is generally used by the large organisations which are indulge in
various activities at one time. In this technique, cost per unit will be changes according to the
level of changes in output if the level of output will be changes then cost per unit will changes
and vice versa.
Marginal costing: It is also known as “variable costing” method as in this method only
variable cost will be change according to the production and fixed costs will always remain
same. This costing method refers to the increase and decrease in the cost in order to producing an
additional unit. This method is used by the small and medium size organisation as it is related to
only variable cost which include labour, equipments, and materials. With the help of this method
the cost of each unit is decided on the basis of variable cost.
Hence, for the Airdri Ltd the best costing method is marginal costing method as it helps
them to decide their products prices effectively. Using different costing method such as

absorption & marginal costing accounting manager will able to understand the difference
between these method by calculating net profitability of company in following way:
Calculation of profit using marginal costing:
Calculation of profit using absorption costing:

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):

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
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.
P4 Defined advantages and disadvantages of different kind of planning tools which are used for
budgetary control
A budget is that report in which a company record all the estimation which are related to
costs, incomes, and resources about their future plans and strategies. On the other hand,
budgetary control is used by the companies to control and monitor on their budget process so
they able to achieve the results according to their assumptions. This technique will help the
Airdri Ltd to estimate their income and expenses on material, machinery, employees, equipment
and many others. Also, it helps them to know the difference between the estimated data and
actual data so they able to know reason behind this difference and they can implement necessary
changes and can increase their productivity and profitability. There are describe below about
various type of planning tools which are used by the organisation for budgetary control:

Zero based budget: It is the the budget in which every activity is based on the zero
base. In this budget company needs to justify all the activities individually because they are not
based on the previous budget. In the Airdri Ltd, with the help of this budget they can reduce the
unnecessary costs from their production so they able to produce at low cost and also they can
show their information with proper transparency. There are some of advantage and disadvantage
of this budget which are described below:
Advantages Disadvantages
 This budget help the company to cut
their extra cost and out-of-date
operations.
 By adopting this budget an organisation
can develop more communication and
coordination between the manager and
employees about definite decisions.
 As it is related to zero bases which
takes a lot of time with respect to the
decision making.
 It is not compulsory that will always
able to find all the detailed informations
and cost which creates an issue in
making this budget.
Master budget: This budget is sum total of all the individual budgets in order to show a
complete representation of all the organisational activities. This budget is mostly used by the
larger companies to keep their information at one place. It is useful for Airdri Ltd as it will help
them to know about the all the activities like sale, operating expenses, income sources, assets,
costs, which help them to take their decision effectively and improve their overall organisational
performance. There are some points of merits and demerits of this budget are as follow:
Advantages Disadvantages
 This budget gives a proper report of all
the financial budget at one place.
 It also helps to estimate overall profit of
their organisation.
 This budget is based on the
assumptions, which might not be
correct in the future.
 This budget is hard to read and update
as it contains various budgets in one
report.

Flexible budget- This budget is more suitable for the companies as they can change in
this according to their needs. It is also known as a variable budget as it is not based on a
particular activities but it shows cost, income, and profit of all the different level of activities.
Moreover, also helps to recognize their performance level and the changes which are needed to
apply. This budget is better than the static budget as it change according to the business situation.
There are described about the some of the advantage and disadvantage of this budget:
Advantages Disadvantages
 This budget is suitable for the
organisations as it is easy for the
companies to update the changing
related to their operational activities.
 It is more useful for the companies as it
show more accuracy and deficiency in
budget.
 The main disadvantage of this budget is
that it is prepared for a specific period
of time like half quarterly and half
yearly.
 It shows the difference in various
budget but it does not tell about the
reason behind these differences.
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems
Management accounting system is very useful for any organisation as it helps them not
only in their internal problems but also helps them in solving the financial issues.
Financial problems: It is the major problem of any of the organisation as it is related to
the lack of the capital. These problems has great impact on the overall activities of the
organisation as well as on the people mental health. If a company wants to operate their activities
without any crisis they need to solve this issues as soon as possible otherwise it will decrease
their profitability and lead them towards decrease position. There are described about some of
the financial issues of an organisation which are as follow:-
 Lack of budgeting and money management skills: This is the main issue behind the
financial crises as it is related to the lack of proper budgeting and money management
skills. This issue is arising because management of an organisation does not have proper
knowledge of rules and principles of budgeting and also they does not know that where
they should invest their money so they can achieve great profitability. For preventing