Management Accounting System in Airdri: A Comprehensive Analysis

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Management Accounting
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Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1: Meaning of management accounting and their essential requirements................................3
P2: Different types of management accounting reporting..........................................................5
M1: Benefits of using management accounting system..............................................................7
D1: Analysis of integration among both management accounting system and reporting...........7
TASK 2............................................................................................................................................8
P3: Different types of costing method used to computer net profitability..................................8
M2: Evaluation of various management accounting techniques...............................................11
D2: Analysis of the financial data from the income statement.................................................11
TASK 3..........................................................................................................................................12
P4: Advantage and disadvantage of using planning tools to control budget............................12
M3: Analysing the planning tool using in organisation............................................................13
TASK 4..........................................................................................................................................14
P4: Comparison about use of management accounting system in response to financial issues
...................................................................................................................................................14
M4: Evaluation of financial issues............................................................................................15
D3: Critical analysis of financial problems by using planning tools........................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17
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INTRODUCTION
Management of accounting transaction is an essential aspect for every business organisation to
record their everyday transaction into their respective accounts book. Nowadays, it has been seen
that there are plenty of problems which are faced by organisation in relation to financial activity.
The primary objective of using management accounting is to attain short or long term objectives
that have been planned by company. Airdri is one of the significant hand drying industry that
identify various gap in the market for reliable and beautiful designed hand dryers to best fit every
washrooms. This project report aimed at providing specific information about use of
management accounting system and its effective needed within Airdri. Apart from this, different
types of reporting system that are used by company in their daily business operations have been
covered in this report. Along with that various costing methods that helps in analysing net
profitability position within organisation is also discussed. Advantage and disadvantage of using
planning tools that can help in controlling budgets is mentioned effectively. Further, comparison
has been done with other organisation in relation to deal with financial problems that are arises in
the company is explained clearly in this project.
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TASK 1
P1: Meaning of management accounting and their essential requirements
In every business organisation, whether related to small or medium size is having issues
associated with their accounting information. The managers of Airdri Company are looking to
have an effective system that can assist them to record each and every transaction in more proper
manner. The transaction should be related to both finance and non-finance at the same point of
time. It is necessary role of manager to take valuable use of reliable system that can record,
summaries, communicate and evaluate the data in more efficient manner. Every finance person
that has held liable for managing different key aspects that can be useful in Airdri Company in
accordance to attain their future goals and objective in current period of time. It tends to take
vital decision in relation to get future sustainability and stability for the company. This has been
identified and control by using more effective accounting system that would be more reliable in
for taking future decision (Zoni, et., al., 2012). The basic role of management is to provide
different services and rules that is crucial for Airdri to increase its entire productivity for the
reliable department. It has been observed that accountants are using old standards and regulation
that is associated to deal with their record which are considered during the period. However, it
has been analysing that all the activities or transaction that are recorded in the statement must be
used for upcoming profitable planning.
Definition of MA:
“Management accounting is an essential process of collecting, recording, summarising and
analysing various accounting transaction that are done within the period of time by the
company”.
There are various crucial role of using management accounting system:
 Helps in making effective decision: It is key role of manager to make use of best
accounting systems that can assist the Airdri Company to take valuable decision in near
future. In relation to make relevant decision it is needed to perform a wide range of
activity that can ensure Airdri financial security and keeping valuable matters to
organisation security (Tessier and Otley, 2012).
 Maintaining capital structure: It is more valuable aspects for the account manager to
raising capital and their use within an organisation. In relation to manage capital or debt
they need to give proper consideration to different cost of capital theories and leverages.
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There are various types of management accounting system which will be use by Airdri in
managing their accounts information. Some of them are mentioned below:
 Cost accounting system: It tends to provide essential detail cost information that
management requires to manage present operation and plan for the coming time. The
primary use of this system is to control the additional cost which is used during
production of product and services. In Airdri, the cost accounting need is to ascertain
cost, setting selling price and cost reduction in attain profitability of the company. There
are specific cost method which are used in manufacturing process is standard, normal and
actual costing.
 Inventory management system: It is said to be effective software that would assist in
tracking inventories levels, sales and delivers that are done by Airdri during the time. It is
basically helpful in production sectors in order to formulate a work order details that
consists of material invoices and other production associated documents. In order to
maintain proper balance among the stock position, there are certain statement that tends
to be taken into account such as LIFO, FIFO and AVCO.
 Price optimisation system: It refers as mathematical evaluation techniques that a
company used to determine how client would react to various prices ranges that are set by
product and services by the help of various channels (Van der Stede, 2015). It is entirely
relies on the overall perception of customer response toward the feature and quality of
product Airdri is offering to their client. This tends to determine total amount of earning
they are getting from sales of their products.
 Job costing system: It has been assign and accumulate producing costs of any single
units of products. The job order costing is basically used by Airdri in case good produced
are sufficiently varies from every other product. There are various types of costing
method which are taken into account such as batch, standard and process costing. It has
been analysed that each product manufactured is having its own identity and number.
P2: Different types of management accounting reporting
In the current scenario, it has been analysed that most of the investors or stakeholders are
getting problems in making decision on the basis of reports. The main reason behind this is that
the data mentioned in the report are not providing accurate or reliable information about the
performance of the company. Reporting is basically known as one of the key documents that
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would relies on overall financial transactions that are made by the company during the period of
time. The project administration system is an essential aspect for overall distribution of report
that would be presented in front of stakeholder of project (Klemstine and Maher, 2014). By the
help of correct reporting and financial delivery planning would have a valuable implication on
Airdri. Because of fundamental variation are having significant changes in the company
performance to make valuable decision for overall profitability in near future. In accordance to
financial report, Airdri investors to analyse critical evaluation that can affect the business
sustainability and growth in coming time. Reports are more valuable tools that can help investors
to make their valuable decision regarding investment in the different projects.
There are various crucial sources through which financial data can be collected such as
financial and non-financial in respect to make report for the company. Some of the data has been
collected from income statement, balance sheet or cash flow statements. The reporting is more
crucial process that help manager to evaluate positive or negative strength of Airdri Company.
The primary motive of manager or any financial person is to check the reliability of data that has
been provided in the report. It need to be well organise or well planned without doing any
biasness so that chances of attain profitable investment opportunities in near future. These can be
done to achieve overall short or long term advantage to attain specific objectives for Airdri (Lim,
2011). In relation to this, there are various types of accounting reporting which would be
prepared by Airdri company are being mentioned below:
Performance report: It is said to be one of the key report that has been made out for the
purpose of recording information on the basis of last couple of year. It is done in order to make
comparison of past and present year performance on the basis of various statements that is
prepared by Airdri. This report is primarily useful for Airdri to show chances of stability and
revenue incurred during the year which would help investors to make their valuable decision in
different project of the company. It would examine the performance and financial stability to
remain in competition in the market.
Inventory management report: It seems to be effective professional asset administration
of different securities such as bonds and shares. This report is prepared for the purpose of
maintain and controlling the level of stock position within Airdri Company. The data is collected
from the opening and closing stocks that has been kept by company during the time. There are
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various ways to evaluate the current position of inventory. Some of them are ABC costing,
Inventory turnover ratio and economic order quantities.
Account receivable report: According to this particular report that has been prepared to
determine the total lists of unpaid customer invoices and vacant credit memos as per date
records. The report is basic techniques that can help Airdri company to collect personnel to
examine which specific invoices is remain overdue for payment (Amoako, 2013). The essential
use of this report is to determine total time need to take basic the amount from various debtors.
The business expects the amount in near future, managers includes account receivable as an
resources on Airdri business balance sheet.
Job cost report: It is an essential report that is prepared by Airdri Company to tracks the
cost and earning through the production of each unit. It would enable proper standardized
reporting that can help in overall gaining profitability by a job. It is an effective system that can
support job costing that must allow specific job number that has to be assigned to any single
items or expenditure and revenue invested in production of that particular job.
M1: Benefits of using management accounting system
All the above mentioned different accounting system is having their own advantage to the
organisation. The specific benefits are mentioned below:
Types Benefits
Cost accounting system It would provide more vastly actionable data as compare to
financial statement that has been made through accounting
transactions.
It can help the Airdri to control additional costs that are used
during production of one extra unit.
Inventory management system An effective stock system can assist in saving time as well as
money at the same time.
Maintain proper track of which items is in hand of Airdri and
which is required to be ordered (Klychova and et. al., 2015).
Price optimisation It can identify accurate market cost for a item that has based
on real time information.
It would estimate overall implication of pricing strategy on
sales and fixes a price that is best reliable for attain goal of
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retail industry.
Job costing system It should assist managers the benefits of being essential to
tracks to keep track of single and group performance in
accordance to cost control.
D1: Analysis of integration among both management accounting system and reporting
In accordance to have proper analysis of both system and reporting used by Airdri during the
period manager need to determine their proper connection. It has been seen that both of them is
having direct relationship among each other. Cost accounting system and job cost report is
examining better way to control the cost and track the performance of product. While, inventory
management system and reports are basically assist Airdri to maintain and control the inventory
records of the business. Further, price optimisation system helps in analysing the perception of
customers toward their pricing policy, whereas performance report help in identifying current
and past year financial records of Airdri Company.
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TASK 2
P3: Different types of costing method used to computer net profitability
Cost is said to be an essential amount that has paid or given through in relation to get something.
It is basically termed as monetary valuation of different account departmental information. The
amount given up for any particular assets which is related to the Airdri Company products and
services is analysed by using specific methods (JOSHI and et. al., 2011). Cost benefit analysis is
a systematic method that would be used to estimate the positive or negative alternatives to
examine right option that will provide more reliable ways to attain maximum profitability for the
company. It is one of the key processes that are used by manager to calculate cost of production
in order to operate a business through proper allocating expenses to different stages of
manufacturing. The data issued by using costing system is helpful for Airdri for wide range of
objective. It would decide whether the cost cutting in the activity of a business cannot affect the
overall performance of the company in near future. There are various types of costing method
which will be used for the purpose of evaluating net profitability position of the company. Some
of them are discussed below:
Marginal costing: It refers as those cost which is incurred by the company for the
production of one additional unit. It seems to essential techniques which consist of only variable
cost to units, while the fixed cost charged during the time is completely written off in relation to
get contribution. Because variable cost are those values which get change as per the production
of other units. The other name of this method is called as period cost (Abdel-Kader, 2011). It is
more reliable techniques which help the investor to make future investment decisions.
Absorption costing: It is said to be total cost in accounting which entails with both full
cost of producing product or services. It would indicate that entire manufacturing cost which is
assigning to units produced is analysed absorbed or over absorbed. It consists of finish product
that consists of direct material or labour. In the valuation of costing both variable and fixed cost
are taken into consideration. Because of having this particular nature, it is known as full costing
method.
The above mentioned costing method is used for the purpose of analysing net income of
generated by the company during the period. Some calculation has been shown below:
Income statement by using marginal costing method
Quarter 1
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Particulars Amount (in ￡)
Sales 66000
Less: Cost of sales
Opening inventory 0
production cost (78000*0.65) 50700
Less: Closing stock
(12000*0.65) 7800
42900 42900
Contribution 23100
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
Net profit 1900
Quarter- 2
Particulars Amount (in ￡)
Sales 74000
Less: Cost of sales
Opening inventory
(12000*0.65) 7800
production cost (66000*0.65) 42900
Less: Closing stock
(4000*0.65) 2600
48100
Contribution 25900
Less:
Fixed overhead 16000
Fixed & selling expenses 5200
21200
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Net profit 4700
Income statement by using absorption costing
Absorption costing for Quarter
1:
Particulars Amount (in ￡)
Sales 66000
Less: Cost of sales
production cost (78000*0.65) 50700 0
Semi-variable (78000*0.20) 15600
Total Variable cost 66300
Less: Closing stock 10200
56100
Gross profit 9900
Less: -400
9500
Selling and distribution as fixed 5200
Net Profit 4300
Absorption costing for Quarter
2:
Particulars
Sales 74000
Less: Cost of sales
Opening stock 10200
COGS (66000*0.20) 13200
production cost (66000*0.65) 42900
Total Variable cost 66300
Less: Closing stock 3400
62900
Gross profit 11100
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Less: selling expenses -2800
8300
Fixed expenses 5200
Net profit 3100
Working note
Fixed costs 16000
Budgeted cost of production
80000
per units
Budgeted fixed cost 0.2
Variable cost per units 0.65
M2: Evaluation of various management accounting techniques
In accordance to attain maximum profitability for Airdri, it is necessary to make use of
specific management accounting techniques. It is essential for an organisation to make use of
financial accounting data by analysing comparative statements, trend and charts. It happens to be
an effective process of record keeping for various financial transactions that used to conduct a
reliable business future. Some crucial techniques are standard costing which is decided by
company by analysing their future budgets. It can be used to examine overall variation among
actual costs. Another one is related to the historical cost is measure of value that can be used in
finance for asset valuation those are recorded in the balance sheet.
D2: Analysis of the financial data from the income statement
In context to analyse the profitability position of Airdri, it is vital to make use of right
costing method that can give more reliable outcomes. The two of best methods are marginal and
absorption costing. One the basis of marginal cost the company is getting a total net profit during
the 1st and 2nd quarter of year is 1900 and 4700, whereas by the help of absorption costing they
are getting net earnings of 4300 and 31000 respectively. The difference are arises because of
fixed cost treatment. The best way to make innovative decision in near future is to take support
of marginal costing techniques (Bobryshev and et. al., 2015).
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