Management Accounting Systems and Reporting for Dyson Company

This report provides a detailed analysis of management accounting practices at Dyson, a British engineering company. It explores the application of management accounting systems, including inventory management, cost management, and price optimization systems. The report delves into various management accounting reports such as budget reports, accounts receivable aging reports, and performance reports, highlighting their integration within Dyson's organizational processes. Furthermore, it demonstrates the usage of cost analysis techniques, specifically marginal and absorption costing, to prepare income statements. The report also includes practical applications of overhead absorption methods (labor hour and ABC costing), providing a comprehensive overview of financial management strategies employed by the company. The report emphasizes the role of management accounting in decision-making and financial control within the organization.

Management
Accounting

Table of Contents

INTRODUCTION
Management accounting is defined as an application of skill, knowledge and expertise in
the preparation of financial and non-financial data (Arena and Arnaboldi, 2014). It is a practice
of identifying, measuring, analysing, interpreting and communicating the information which will
be used by managers in the decision-making process. It includes the cost savings of the
organization in keeping cash flow, enforcement ability, financial strength of the company and
more. Based on such inner data, an organization may choose suitable alternatives and take
choices aimed at the future development of the company. This acts as a tool for the management
in forming plan of actions and achieving better control over the various activities performed in
an organisation. For the following report, a British engineering company has been selected i.e.
Dyson which is established in UK. It was founded on 8th July, 1991, 28 years ago by James
Dyson. The company designs and manufactures household appliances like vacuum cleaners, air
purifiers, heaters, dryers etc. This report highlights on the need of management accounting
systems and reports by businesses as these help in decision-making. Also, different types of
budget, planning tools and other indicators are used to resolve the financial issues faced by
Dyson are also covered under this document.
TASK 1
Management accounting systems:
Management accounting: It refers to a tool which helps in preparation of financial and
non-financial information that is used by management of a company. This also analysis business
costs and operations in order to prepare internal reports and records which can aid the managers
in the process of decision-making. The major aim & purpose of management accounting is to
evaluate an organisation's performance, efficiently utilize the resources, plan for future course of
actions etc. With the help of this technique, Dyson prepares its financial statements and take
important decisions about the non-financial items or other aspects required on a day-today basis.
Management accounting system: Management accounting systems are internal part of
company and apply into different types of departments (Armstrong, 2014). It complies by
various systems which help companies in taking effective decisions related to setting price for
products or services offered to the user, manage stock levels by keeping an eye on the inventory
at warehouse etc. There is a requirement of management accounting systems within an enterprise
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as it helps in estimating value of various products & services by maintaining a balance between
them. Dyson uses management accounting systems to make products as per the need &
requirement of the user.
Inventory management system: This is a system which ensures that stock levels are
maintained at the warehouse which includes raw materials, finished products, labour etc. It
involves recording of inventory in a unique software like barcode reader which helps the firm to
track down inventory. This system ensures that inventory is ordered from the supplier before the
lead time in order to avoid stock-out. For the purpose of valuation, different types of techniques
are used i.e. LIFO, FIFO, Weighted average method which are defined as follows:
LIFO: Last in, first out is a method which states that the product which is last produced
should be sell first (Azudin and Mansor, 2018).
FIFO: First in, first out is a method which states that the goods which are produced at the
beginning should be sold first.
Weighted average method: It is a method which divides the cost of goods sold available
for sale by the units produced.
Dyson values its stock on the basis of FIFO which states that the products which are
produced at the beginning should be sold first as every new appliance is updated with every
production. In order for the company to get an idea about when the products are consumed by the
customer, this system makes sure that proper tracking is done straight away when the product is
dispatched from the warehouse till it is delivered to the client.
Cost managerial system: It is a technique that is used by companies in order to estimate
the value associated with different products and services offered to the user. This involves two
concepts namely job order that accumulates and assigns cost separately for a job or task whereas
process costing is a method that collects and allocated value for each process. The purpose of
cost accounting system is to carry out the outlay and value it on the basis of different costing
techniques like ABC, Marginal, Absorption etc. The essential requirement of this system in the
Dyson uses cost managerial accounting to assign price for the dryers, heaters, air purifiers etc.
(Bierstaker, Janvrin and Lowe, 2014).
Job order costing system: It is a system which ensures that the goods & services are
produced as per the need and requirement of the client. Since, customer satisfaction plays a
major role in forming business operations so it is essential that the orders placed by the
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customers are manufactured according to their specifications. The major purpose of this system
is to ensure that consumer response as well as their requirements are analysed so that the
products are made accordingly. With the help of job-order costing, Dyson produces its dryers,
vacuum cleaners and other appliance as desired by the user.
Price optimisation system: This is a system which involves setting value for different
goods and services offered by organisations. It comprises of allocating price to a specific product
after assessing the needs & requirements of the customer as they are the ones who will consume
these facilities. The major purpose of this system is to assign a value to the products purchased
by the client. With the help of price optimisation system, Dyson set effective price structure of
their different types of products and analysis of profit margin (Chenhall and Moers, 2015).
Management accounting reporting:
Management accounting reporting: This is defined as a process of reporting where
forecasts are prepared for the future expenses and gains. It also involves provision of financial
data which is used to advise the companies to efficiently utilize the funds allocated for each and
every task. The purpose of management accounting reporting is majorly to produce financial and
non-social reports on the working of an organisation including all expenditure and earnings.
Dyson uses this concept in preparing estimates for manufacturing the air purifiers, dryers, fans
etc. and equally apportioning the funds in all functional departments.
Budget report: It is a type of report which is used to prepare forecasts for the future
expenses and income after analysing the prior expenditure so that accurate funds are allocated
within each functional department. The major purpose of this report is to ensure that proper
finances are assigned for every line item as well as expenditure incurred on a day-to-day basis.
With the help of a budget report, Dyson produces an estimate for the funds required in
manufacturing its dryers, vacuum cleaners etc.
Accounts receivable aging report: Under this report, a record of all the amounts which
have been due from the suppliers and customers are recorded in an efficient way. It ensures that
there are no bad debts by offering cash discount to the suppliers whose amounts are due from a
long time. This also helps in administration of a firm's cash flow position by offering some
incentives to the debtors so that they are able to pay on time. With the help of an aging report,
Dyson examines its trade receivables and calculates a collection period which states the duration
of time a defaulter has to pay off the dues (Cooper, 2017).
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Performance report: It is a type of report which analyses the performance of business
transactions as well as work done by employees in an organisation. For this purpose, various
strategies and performance indicator apply by company to analysis performance of employees.
On the basis of their performance provide monetary rewards which can help to encourage
regarding their work. It is important to prepare by manager of Dyson because it provides detail
information of employees.
Inventory management report: It is a type of report which ensures that adequate levels
of stock are maintained at the warehouse. This confirms availability of raw materials, finished
products etc. with the store manager and accordingly places order for the stock before the lead
time. This report is required by management to check appropriate inventory levels are present at
the warehouse especially during peak season. For this purpose, Dyson prepares inventory
management report to assess the products which are highly consumed by the market participants
and ensures that the raw materials used in manufacturing of those goods are readily available at
the store (Fullerton, Kennedy and Widener, 2014).
Integration of management accounting system and report within organisational process
Type of reporting & Systems Integration with organisational process
Inventory management report and system –
The particular report produced by company
on the basis of segregation of information
which is collected from inventory
management system.
Integration of report & system in organisational
procedure is appreciated from the element that it
helps Dyson to arrange raw materials of
manufacturing products and predications of
desired level of purchase orders.
Performance Report – This report is
prepared to know performance of employees
with the help of different systems. There are
including actual performance of several
sections in Dyson. The appropriate data
collect through cost accounting and price
optimization system.
The combining of this report and system in
procedure is determine from the fact help to get
differentiation in the manufacturing of different
products and also deviations and misalliances are
removed from the contribution of the report.
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Usage of the techniques of cost analysis to prepare income statement by using marginal and
absorption costing
Cost accounting techniques are applied as tools that will provide help to a company like
Dyson. Through these techniques determine the cost of products and calculate profitability in
particular period of time. According to task, revenue of selected company is calculated through
marginal and absorption costing and also interpret them to easily understand.
Marginal Costing – It is defined as costing system that will use to charge variable costs
against the sale revenue. There are including fixed cost and variable cost and written off through
contribution in certain period of time (Heinzelmann, 2017).
Absorption costing – This is a costing method which includes all the expenses that is
related to variable and fixed and charges against gross sales. According to this method direct
charges of production and charged from sales and there are all indirect expenses that are selling
and distribution of charges. It is charged against gross profit in reference to determine net
profitability.
ANNEX (A)
Question 1
Income statement by marginal costing method:
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Income statement by absorption costing method
Income statement by Marginal costing method
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Working notes:
1.
Total variable cost per unit 51.5
COGS
opening stock 25750
Production cost 303850
Less: closing stock -149350 180250
2.
Per quarter standard
production 5500
Fixed production cost 75000
Fixed prod. Cost per unit 13.64
Actual cost 80476
absorption -5476
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ANNEX (B)
Question 1
(a) Labour hour: -
Product X = £6000*1 = £6000
Product Y = £8000*2 = £16000
Labour hour = £2,64,000
------------
22,000
= £12 per hour.
Overhead absorption on labour hour: -
X Y
Overhead absorption = 1*12 = 2*12
= 12 = 24
Total Overheads = £6000*12 = £8000*24
= £72,000 = £192,000
(b) Using ABC approach: -
Machine hour per period:
Product X = £6000*4 = £24,000
Product Y = £8000*2 = £16,000
Cost driven rate: -
Production set up = £179,000 = 2893 per set up.
60
Order handling = £30,000 = 416.666 = 417 per order
72
Machine cost = £55,000 = 1.375 per order
40,000
Overhead using ABC approach: -
X
Set up = 15*2983 = 44,745
Order = 12*417 = 5004
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Machine cost = 24000*1.375 = 33,000
Total 82749
Y
Set up = 45*2983 = 134,235
Order = 60*417 = 25,020
Machine cost = 16000*1.375 = 22,000
Total 181,255
Interpretation of above data
As per the above statement prepared on the basis of costing method like absorption and
marginal method. After applied both methods thee are achieving different results for fixed costs.
The amount of net income in reference to Q1 is Pound 721000 and Pound 150000 respectively
for item A and B. While Q2 are -40000 and 186500 regarding to item A and Item B. After the
apply absorption costing method get amount of Q1 is 721650 and 154000 for item A and B and
in the Q2 is -37150 and 185400 for product A and B respectively.
ACTIVITY 2
Planning tools applied for budgetary control:
Budget - It can be described as a financial plan created by executives to carry out all
operations in a suitable way. It is very essential for all companies to analyse their actual situation
and properly determine which type of strategy applied in different situation. In Dyson, manager
develop different types of budgets to predict income as well as expenses. It can help to obtain
long term business goals (Hitomi, 2017).
Budgetary Control – It is a procedure where business activities are controlled by
managers to set performance objectives for potential period of time. Through this process,
control unnecessary payment of monetary resources by Dyson for accomplish their goals and
objectives in set period of time. Through budgetary control, company increase their profitability
as well as productivity to become as leading company in their sector. It is also regarded as most
reliable way of conducting company, as it serves to ensure that all materials are used efficiently.
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