Analysing Cost, Reporting Methods and Adapting Accounting Systems

This report defines management accounting and its systems, explaining their role and principles. It uses techniques like marginal and absorption costing to analyze costs and prepare income statements. Different planning tools for budgetary control are evaluated, highlighting their advantages and disadvantages. Furthermore, it discusses how organizations adapt their management accounting systems to respond to financial challenges, specifically referencing Airdri Group. The report covers cost-bookkeeping, stock administration, cost streamlining, and job costing frameworks. Methods for management accounting reporting, including cost, budget, performance, and inventory management reports, are also explored.

Management
accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
P1 Define management accounting and also give important requirements of various kinds of
management accounting system..................................................................................................3
P2 Explain different methods used for management accounting reporting................................5
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income
statement using marginal and absorption costs...........................................................................6
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control......................................................................................................................10
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems.....................................................................................................................12
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting is a type of method which is passed in every business for
making various reports by analysing the fundamentals of organisation. It is an exercise for
identification, measurement, examining and interpreting the fundamentals or financial
information to manager for achieving the goal of an organisation. It differs from financial
accounting because the intention or the motive of managerial accounting is to provide help to the
internal users of the organisation to achieve the goals of the company. Airdri Group was founded
in year 1974 by two mechanical and electrical engineers. By starting of best exercises and
maintaining the honesty Airdri Group try to fulfill duties with regard to environment, providing
trustworthy and innovative commodities that presents dedication of Airdri group by not wasting
or saving of energy, decreasing in level of noise and purify air. In the year 2020, Airdri has
established SteraSpace, a changing the best in class air and sanitisers for surface, that are
assembled in a particular manner that make sure 99.6% of bacteria and germs are eliminated
(Bagherzadegan, and Khanmohammadi, 2019).The report consists of two parts. The first part
includes the role and principle of management accounting and its systems which are explained in
detail using the techniques and method of marginal and absorption costing. Further, the part is
summed up by describing the integration and benefits of it in the entity. The second part takes
into consideration the different planning tools. Also the financial problems of Airdri Group are
discussed in the following report.
MAIN BODY
P1 Define management accounting and also give important requirements of various kinds of
management accounting system.
Management Accounting
It is also named as managerial accounting. It is a method of accounting that aids in
generating of statements, reports and documents that assists the management in the process of
decision making which are linked with the performance of business. It is mainly used for internal
operations of an organisation. It assists the management to perform all its functions including
planning, organizing, staffing, directing and controlling (Baxter, and Chua, 2019).
Influence: Communicating with impact facilitates decision making about strategy application at
all level of the organisation. This concerns to how decisions are made, basis on which the

decisions are tailored. It also shows the break down how conclusion have been reached. In a
manufacturing unit like Airdrie group. Decisions are to be made at each level, effective
communication and transparency of decision taken should be given. This makes sure the smooth
operation of the enterprise.
Value: The causality principle which depicts that input and output cause and effect should be
base of operations. The cost involved in production should be directly proportional to its
productivity. In this case, Airdrie group is involved in manufacturing Renewable source of
energy semiconductor. This principle is applied through analysis of all the production unit their
productivity and cost involved in manufacturing. The results of the analysis help in production
decisions.
Relevant: Validity of information, its sources from where it is extracts should relevant to the
organisational plan. This is important when making strategies and applying them in the
organisation. This involves maintaining a proper balance between the financial, non-financial,
past trends analysis, future projections and internal-external information about environment of
the company. Airdrie group decisions to achieve the organisational goal are made considering all
those factors. So that effective and efficient decisions can be taken.
Principle of analogy: The fourth principal of management is the application of management
accounting through directing, controlling and motivating. These activities are done by analysing
insights from past trends and future estimations. This is basically applied by top management
level of the company.
Role of management accounting and its systems.
It refers to an process that usually centres about observing and evaluating stratified
objectives to refer distinctive monetary and non-monetary data to higher governing body of
organisation. Administrators can uses this information for making various financial plans and
implementation of reports. The executive accounting is surely have more unpredicted content as
compared to organised summaries of budget. Main difference between them is that the prior one
is ready in affiliation with inner cycles on the contrary the last one is brought up for outsiders
such as investors. It generally assist in predicting future patterns and incomes of company
function which also advises in making plans related to spending.
The accounting framework is a tool of supervising and effecting employees just as
various costs which are primary for accomplishing important goals (Boyle, Boyle, and

Hermanson, 2020). Compulsory implementation of the accounting framework in Airdri Group is
beneficial as it provides different experiences which helps in direction and organising
procedures.
Some of the Management accounting systems are:
 Cost-bookkeeping framework is a strategy wise system which aids in associating in
evaluating item cost for providing advantageous and stock valuation. It is beneficial for
the company as it aids in administration of beneficial items for activities in business. This
strategy initially helps the bookkeepers of foundation in easily availability of fiscal
report. It includes of occupation request and strategies of cycling cost.
 Stock administration system is concerned with anticipation and changes in bookkeeping
changes in inventory at various stages. Businesses includes this model to expand its deals
and increase net revenues. Stock of businesses are of three types, to be specific,
unprocessed components, work underway and accomplished commodities. Its action is
usually required in organisations to increase operational ability and duration of business
project. It assists the organisation in differentiating direct cost related with acquiring and
thoroughgoing away interactivity. It also assists entity in holding additional stock which
aids in occurrence of deficiencies (Campbell, Mauler, and Pierce, 2019).
 Cost streamlining framework arithmetic model which aids an organisation in fall down
and assessment of requests and the level of volatility is high with the changes in
administration or value of an item. The collected information within the model is
compiled with cost and inventory and recommendation that promotes in increasing the
productivity level. Airdrie indulges this model for collecting information about trends in
market, request of clients and propensity for better working of operational activities.
 Job costing framework is a plan of collecting different kind of data for pursuing and
analyse cost with interpreted work. It requires for absorbing various data in context with
direct material, cost and upward. Airdrie includes this model for winding up of accurate
of its analysing framework which aids it in promoting cost valuation of items.
Furthermore, it helps association in development sensible benefit. Basics of this model in
an consortium is constantly analysing of creation procedure which aids with
acknowledging all conflicts and making adaption for any new injure scenario (Chung,
and Cho, 2018).

P2 Explain different methods used for management accounting reporting.
It is used for designing, controlling, decision making purpose and measurement of
performance. These reports are consistently created through the accounting and auditing period
according to necessities. The outcomes of management accounting is in form of periodic reports
for the organisation's department managers and CEO. For instance, current creation of sales
revenue, the recent position or condition of the entity's accounts payable and accounts
receivables etc. Management reporting looks in the business in a more elaborated manner and
represents outcomes from different sections. Instead on focusing on the entire organisation,
management reports emphasis on a specific job, department or team.
Methods used for management accounting reporting are:
 Cost report: While doing a business in Airdrie group, management accounting examines
different types of costs for manufacturing items. In accordance with, cost report is
executed in Airdrie group, as it analysis all labour costs, raw material above any types of
additional cost in creating the report of management accounting. The completed
information is then properly compiled with cost report. Consequently, the method in
administrations in controlling and planning of the profit margins (Lehner, and Harrer,
2019).
 Budget report: This specific procedure plays a vital role in world of management
accounting in Airdrie for describing as it focuses on maintaining and diverging budgets
with various kinds of units in company. The report of budget highlights on performance
of Airdrie group, firm and is regularized in an entity. Report represents that managers as
a guide for rearrange terms with suppliers and vendors, good employee incentives and
cutting the cost on products. Managers also work for increasing the demand in sales and
decreasing the expenses because of saving the money.
 Performance report: It can be termed as a detailing statement which calculates result of
particular activities which is related to the growth of company in specified time frame.
Management accountants of Airdrie group, making optimised use of budgets for
comparison of real expenses with revenues which are related to budgeted variables and
them list or upgrading information on performance of report. When a report is build
managers plans the demand of its future for customers and the need of a product in
market and accordingly makes changes in prices (Li, 2018).

 Inventory management report: It is an abstract of remaining stock and stills
information of such quantity of stock is accessible, products that are sold the most and
fastest, category performance etc linked to status together with presentation of inventory.
For profitably growth of Airdrie group,it is important for management inventory level in
correct and ideally ways as possible. It is authority of purchase manager of the company
to make sure that correct stock levels are sustained in accordance for manufacturing and
selling of different varieties of products. The revealing method that records all kinds of
deals which are related to diversification of inventory to different compartments and their
end results.
P3 Calculate costs using appropriate techniques of cost analysis to prepare an income statement
using marginal and absorption costs.
Cost: It can be termed as an amount which can be paid in place of getting product or
service. In accordance with business, cost is valuation of money with sources, risk incurred,
opportunities forgone, materials, consumption of time and utilities in producing with product
delivery or any services. For analysing cost of preparation of income statement, financial
analysts uses various kinds of techniques and methods (Li, 2022,May).
Absorption Costing: In this , managers uses a method for making external financial as
well as reporting of income tax also. Analysis of techniques related to cost capturers all cost
which is related with production or selling a product.
Cost per unit -Absorption costing approach
2020 2021
Absorption cost per
unit(B) Absorption cost per unit (C)
Direct Labour cost £ 11 Direct Labour cost £ 11
Direct material cost £ 17 Direct material cost £ 17
variable expenses £ 7 variable expenses £ 7
Fixed indirect production
cost £ 24 Fixed indirect production cost £ 20
(Fixed cost per annum/production units
2020)
(Fixed cost per annum/production units
2021)

Total cost per unit £ 59 Total cost per unit £ 55
Income statement 2020 and 2021:
Profitability statement using absorption costing method
2020 2021
Particulars
Sales 4000 * 95 380000 4500 * 95 427500
COGS (opening
stock + purchase -
less closing stock)
Opening stock 1500 * 59 =
88500
1000 * 59 = 59000
Production
Direct labour 3500 * 11 =
38500
4200 * 11
= 46200
Direct material 3500 * 17 =
59500
4200 * 17
= 71400
Variable expenses 3500 * 7 = 24500 4200 * 7
= 29400
Fixed production
cost per annum
3500 * 24 =
84000
4200 * 20
= 84000
Less: closing
stock
1000 * 59 =
59000
236000 700 * 55
= 38500
251500
GP 144000 176000
Less:
Administrative
overhead
11000 11000
Net Profit 133000 165000

Marginal costing: The cost examining technique in which fixed costs of period and
variable cost are imposed on units for cost are demonized in complete manner in opposed to
offering is termed to marginal costing. In the method is used for examining circumstances
wherein break even point is equals with fixed costs. It implicit additional costs that are part in
production of extra output units (Ling, 2021, April).
Profit and loss as per marginal costing method:
Calculation of opening and closing inventory units
2020 2021
Opening stock 1,500.00 1000
production 3,500.00 4,200.00
sales 4,000.00 4,500.00
closing stock
(Closing stock = opening
stock + production – Sales ) 1000 700
Cost per unit -Marginal costing approach
2020/2021
Marginal cost per unit (A)
Direct Labour cost £ 11
Direct material cost £ 17
variable expenses £ 7
Total cost per unit £ 35
Income statement 2020:
Sales (4000 X 95) 380000
Cost of sales (opening stock + production -clossing
stock)
Opening stock (1500 x 35) 52500
production (include all the production costs)
Direct labour (3500 x11) 38500

direct material (3500*17) 59500
variable expenses (3500*7) 24500
Less- Closing stock (1000*35) 35000
Cost of sales (opening stock + production -closing
stock) 140000
Contribution 240000
Less- Administrative overhead 11000
Fixed production cost per annum 85000
Net Profit before tax 144000
Income statement 2021:
Sales (4500 X 95) 427500
Cost of sales (opening stock + production -clossing
stock)
Opening stock (1000*35) 35000
production (include all the production costs)
Direct labour (4200*11) 46200
direct material (4200*17) 71400
variable expenses (4200*7) 29400
Less- Closing stock (700*35) 24500
Cost of sales (opening stock + production -clossing
stock) 157500
Contribution 270000
Less- Administrative overhead 11000
Fixed production cost per annum 85000

Net Profit before tax 174000
The income statement shows that through absorption costing, net profit of £ 133000 is
made in year 2020 while in year 2021, Airdrie group, achieved net profit of £ 165000. At same
time, through marginal costings, net profit of £ 144000 in year 2020 and in year 2021, net profit
of £ 174000 is generated by the company (Montenegro, and Rodrigues, 2020).
P4 Explain the advantages and disadvantages of different types of planning tools used for
budgetary control.
Budgetary control process
The finance department of the organisation incorporates a variety of budgets for different
activities. On basis of which it takes corrective and directive actions for the company. A
responsibility centres are identified for a operational unit which is lead by a team leader who is
held responsible. In simple words it is a technique where actual results are being compared with
budgeted result. There are different types of methods, techniques, planning tools, used in
management accounting which can impact the outcome in efficient and effective working of a
business. There are many advantages and disadvantages which are linked with management
accounting which helps the business to grow, expansion and which can also cause obstacles in
the way (Narayanan, and Boyce, 2019).Budgetary control is the utilisation of actual expenditure
with some levels which are strictly set up the organisation. Planning tools are the instruments
which provides observation and following up the operations for implementing a specified plan
or project. Supervisors of Airdri Group are using different types of planning tools for the
properly control of the budgeting system. Some planning tools are discussed below:
Operating budget: It can be termed as a budget which is in place in accordance with all the
operations which revenues and activities related to expense as well. Supervisors of Airdrie
group use this budget for managing and controlling expense related activities in relation to
business. It also helps in prediction of issues which are related to future happenings, expenses
and take precautionary course of actions in advance. There are 3 major components of operating
budget which can be termed as revenue, variable costs, fixed costs (Ng, 2018).

Advantages Disadvantages
It can have a fruitful result in Airdri
Group for calculating costs and
management on expenses of the
business functional activities for
accomplishing the main motive of
business in the long period of time. This
method can assists in making the best
available possibility to enlarge business.
It is not suitable for Airdri Group as it do not
encourage any assistance for evaluating the difference
between standard and actual costs. This method is not
considered suitable and is not flexible in nature and
working. Modifications cannot be made in policies
which are formed during the year.
Zero based budgeting: Zero based budgeting is a technique which elaborates the causes of the
expenses which are occurred in the financial year. It is used by Unilever for analysing the best
feasible uses of resources allocated at different places. There are certain advantages and
disadvantages for Airdrie group,
Advantage Disadvantages
This method assists Airdri Group in
determining the areas which aid in creation of
profits and the operational activities in which it
utilized. This provides a better, clearer and
more applicable data for understanding the
working of company and analysing of business
performance that would assists in management
of the budgets and have a proper control over
them.
It is understood as a challenging, time
consuming and an pricey process. It is
considered as tough task to detailed the usage of
expenses and creation of profit in budgets. Any
decrement in the profit margin or revenue of the
company can effect the brand image of the
company.
Capital budgeting: It is an assessment acknowledged by an organisation for the determination
and estimation of potential for essential projects and investments. For instance, planning for
investing a huge amount in machinery and new technology for long term success of operations of
entity. This technique assists Airdri Group in researching and selection of beneficial decisions
for accomplishing long term success of organisation. Its merits and demerits in context Airdri
Group are:

Advantage Disadvantages
It is beneficial for Airdrie group as it leads to
better understanding of risk and its impacts of
the investment decisions. It aids the business to
select the best investment aspect in a
aggressive market to stay in lead from its
competitors. It also stops the management to
over and under investing.
It is not advisable for Airdrie group as there is
long term investment decision and which is not
good approach. If the decision are taken in
wrong manner than it can impact the
organisation in and durability of the business in
long term.
Managerial accountants of Airdrie group uses a number of planning tools for the
preparation and forecasting of different budgets. The organisation uses zero based, capital and
operating budget techniques for examining the effectiveness of business working. Zero based
budgeting is used by Airdrie group for apportionment of revenue and profit to particular
expenditure. It can be utilised in an entity by deciding which functions should take place and the
manner of performing those functions. Decision makers of company used capital budgeting for
making correct choice regarding a project or investment. This can be processed in an entity by
discovering and evaluating potential opportunities. Operating budgeting is utilised by Airdire
group for keeking a track of incomes as well as expenses and also helps in evaluation of financial
performance of business. This can be processed in an organisation through making a comparison
between the actual and pre determined costs (Sellami, and Gafsi, 2019).
P5 Compare how organisations are adapting management accounting systems to respond to
financial problems.
Financial problems: It can be determined as a situation in which an organisation is
becomes unable to fulfil its goal and pay off its liabilities and expenses on time for both long and
short run. For example, decrease in the cash flows for performing operations of business in an
effective manner. Certain financial problems related to Airdire group are as followed:
 Lack of finance: Finance is determined as the most vital or can be said blood fro
organisations, which assures operational effectiveness. Without the sufficient availability
of finance, an organisation cannot think of its expansion and further development, Even
inadequate finance can create issues in day to day operations of Airdire group .

 Mismanagement of cash flow: This method can lead Airdire group towards the path of
inefficiency and diversification of activities in various areas. Improper management of
cash flow can results in confusion and default in reporting of operations of business. It is
a important financial problem which seriously effects performance of business.
 Excessive Debts: It can create a great financial problem to entity. Highly indebtedness of
funds can lead limits Airdire group in keeping its short as well as long run liabilities and
even creates a situation of bankruptcy. This financial issue can also create obstacle in
meeting daily operations of an organisation (Triantafillou, 2022).
Approaches of management accounting used by Airdire group are as follows:
1.Financial governance: This includes the policies and processes that assists an entity in
keeping track of financial transactions and vents, performance of management and ,
monitoring of different operations. Ineffectiveness of this methods limits Airdrie group in
examining and gathering correct information about the financial transactions. Risk can be
identifies at a faster pace as compared to its competitors if this approach is approach is
implemented in an effective manner.
2.Key performance pointers: This indicates the set of quantifiable techniques that
assists an enterprise in measurement of its overall performance. These are traced by
automatic software's and various analytical techniques. It is advantageous for Airdire
group as it assists in formulation of organisations goals and also evaluates execution in
operations.
3.Benchmarking: It is expressed as an method of making comparison between products,
services and strategies of company those organisations who are determined as leaders in
the industry. Airdire group utilises this technique in their workings as it assists in
reducing performance gaps which leads to identification of areas which are required to
have modifications in them.
Basis of difference Airdri Group Proctar & Gamble
Financial problems Airdri Group can be seen
facing some problems related
to working capital. The daily
activities cannot be performed
P&G is observed facing issue
of excess cash outflows which
leads to a situation where the
organisation becomes unable

on time without availability of
adequate finance.
to pay off its debts and
expenditure on given time.
Management accounting
approaches
Airdri Group acquires the
method of benchmarking to
make a responsive approach
towards its financial issues.
This technique of management
accounting aids in
measurement of performance
of organisation effectively in
respect of its competitors.
P&G uses key performance
pointers to examine its past
performance and make a
comparison between past and
present performance. This
assists in evaluation and
identification of differences
between the two.
Management accounting
systems
Airdri Group uses cost
accounting system to distribute
procurement cost among
various products. This aids in
increased revenue and profit
generation.
P&G uses inventory
management technique to
manage its different workings
in organisation. Effectiveness
of this application assist in
handling its financial issues in
an effective and efficient way.
CONCLUSION
The above prepared report concludes a brief discussion of Airdri Group, the meaning of
management accounting and need of various kinds of man accounting systems in Airdri Group.
It also consists of different techniques used in the process of management accounting reporting.
It also discloses the techniques of cost analysis like marginal costing and absorption costing used
in the preparation of income statement. The following report also contains the advantages and
disadvantages of various types of planning tools applied in budgetary control. It also represents a
comparison on the way organisations adopts management accounting systems to overcome
financial problems.

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