Management Accounting Techniques in Aerospace Engineering

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Management Accounting
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Table of Contents
Activity 1.........................................................................................................................................2
Introduction..................................................................................................................................2
Part A...........................................................................................................................................2
Part B............................................................................................................................................4
Annex A...................................................................................................................................4
Annex B....................................................................................................................................5
Conclusion...................................................................................................................................6
References........................................................................................................................................7
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Activity 1
Introduction
This report has been prepared as a senior management accountant of Aerospace Engineering
Company of UK to help in gaining the understanding about the management accounting and its
various systems which are implemented in the organization thus helping in decision making and
effectively managing the processes of the organization. It states the role and functions of the
management accountant and its department in the overall development of the organization along
with the various techniques of management accounting implemented in the process of the
organization. Also, various cost analysis techniques have been analyzed in this report along with
the difference in the costing techniques.
Part A
Management accounting is a technique that is implemented in an organization to achieve the
desired objectives as well as goals of the organization and help in effective decision making for
the organization by analyzing the financial data provided by the organization. Management
accounting helps the organization to use the resources available with the organization effectively
and efficiently (Bobryshev, et. al., 2015). For Aerospace, management accounting will help in
managing the cost and providing clarity on the processes of manufacturing by providing
accountability to various departments.
Types of Management Accounting System
 Cost Accounting System: This system helps in determining the cost of the product
manufactured by the company by computing various types of cost for a particular
product. This includes cost related to direct material, direct labor and allocation of the
overhead cost to the particular product (Christ, 2015). For Aerospace cost accounting
system would help the organization to appropriately allocate cost and determine the
overall cost of the project along with the break-even and CVP Analysis of that project.
 Inventory Management System: This system helps in managing the inventory of the
organization in an organized way. Also, the inventory management system helps in the
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proper valuation of inventory and determines the value of the closing stock at year-end. It
also manages the proper flow of inventory in the organizationamong various departments.
Aerospace inventory management system is an essential requirement as it helps in
keeping a track of the inventory and its flow and also helps in the valuation of stock-
based on the FIFO method (Libby, 2017).
 Price Optimization system: In this type of systemthe price of the product is determined
after analysis relating to the cost-volume, customer review, targets, and goals of the
organization, etc. This method helps in analyzing the presentmarket condition based on
which the price of the product would be determined. In the business of Aerospace, the
needs of the customer are to be fulfilled and the product is to be provided as per customer
specification and pricing thus price optimization system would effectively help
Aerospace in analysis and fixation of price in the market.
 Job Costing: This type of system is followed by the organization where there are specific
orders from customers and the orders are fulfilled based on the specification of the
customer. In this method each order is treated as a separate job and cost is computed for
each job as each job is based on different specifications (Libby, 2017). In the case of
Aerospace, the production is based on different customer requirements thus job costing
can be very beneficial as the cost of each job is separately computed which helps in
determining the profit on each order thus helping the company to determine whether such
order should be accepted again. Also, it helps in properly meeting the customer
requirements and quoting the price based on the cost of that individual product.
Methods of Management Accounting Reports
 Inventory and Manufacturing Report: This report provides details of the inventory
availability in the organization along with the details relating to manufacturing. This
report provides a detailed explanation of the movement of goods and the manufacturing
process including the details relating to thewastage, overheads cost, etc. This reporting
method can be used by Aerospace to determine the closing inventory and the
manufacturing details of the products(Sarokin, 2019). Also, details relating to wastage of
products and time can be determined using such a report which helps in determining the
efficiency of the particular project or department.
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 Budget Report: This report helps in determining the overall performance of the
organization as it helps in comparing the budgeted data with the actual data along with
the analysis of the reasons for such a difference. Also, it helps in the analysis of cash flow
and cash requirement for an organization. Aerospace can measure the performance of the
company with the help of a budget report which can help in achieving the desired
objectives.
 Debtors Ageing Report: This report helps in dividing the debtors of the organization
based on the period for which amount is due from debtors. The report divides the debtors
of the organization into a number of days amount is due ranging from less than 30 days,
30 to 60 days, 60 to 90 days and more than 90 days. Aerospace can use this report to
analyses the problems in the collection process and make strict credit policies to help in
cash and debtor management(Sarokin, 2019).
 Costing report: - it is the report which depends on the expense of the item and how it is
controlled by the association. It demonstrates the different elements that are influenced
the last cost of the item. Typically different factors, for example, material cost, work cost,
some other variable expense and fixed expense. All these expense are consolidated and
makes a last expense for the item.
 Price-advancement report: - it is the report which demonstrates the adjustment in the
value which influences the deal amount and extreme influences the benefit of the
organization. Utilizing this methodology it is imperative to discovers the components that
can be connected on the item with the goal that the expense can be controlled and
furthermore helps in a worthy cost of the item which aides in all the more selling of item
as the clients are fulfilled from the cost of the item.
Advantages of Management Accounting Systems:
• Planning is the most significant apparatus for accomplishing the objective of the organization.
Arranging is the initial step for each association for accomplishing the objective. Arranging gives
the base to the administration for their planning of the objectives. Organization begins working
their work in the wake of doing arranging and furthermore in the wake of designating the work
to their individual office with the goal that the diverse office can pursue their assignment in
accomplishing the goal.
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• Helps in choosing the administration choice with the goal that the correct and compelling
choice is taken to accomplish the objective. Typically the executives bookkeeping is completely
founded on the basic leadership in such a case that the successful choice is taken then the
organization will prompt economical improvement and if not the altruism will diminish. At some
point the choice which negative effect on the arranging of the objective. So before taking choice
the result can be analyzed or the objective can formalized which aides in fathoming the future
obstacles if any happens by the association.
• Effective data ought to be gathered with the goal that the administration can apportion the data
in taking choice and arranging the assets. Data is the base to the arranging as arranging is done
subsequent to dissecting the data. There are different kinds of data accessible yet the
administration records use past year pertinent data which aides in basic leadership so the
significant data can be chosen.
Integration of accounting systems & Reporting:
• The stock administration and stock report are complimentary to one another. As stock report
demonstrates the elements that are influenced the stock assembling, for example, absence of
crude material, less work power or untalented work power (Christ and Burritt, 2015). This all are
examined by the stock report. Stock administration helps in dealing with the progression of stock
so the market request can be satisfied by assembling the item according to market request and
furthermore to put the stock as extra in the distribution center to meet the any crisis happens by
the business.
• Cost the executives are particularly like cost the board report. Cost the board encourages the
association to choose the expense of the item with the goal that the market can ready to stand to
yet the item additionally helps in gathering the interest of the client (Christ and Burritt, 2015).
Costing reports the components which influence the expense of the item, for example, change in
the cost of crude material, work costs changes, any assembling overhead impacts the all out
expense of the item (Christ and Burritt, 2015).
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Part B
Annex A
Absorption Costing
Marginal Costing
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In this Annexure, the cost has been computed and the income statement has been prepared using
two different approaches namely the Marginal and Absorption approach. In the marginal
approach, the incremental cost is shown with the increase or decrease in theunits of production
which helps in computing the break-even point (Ball, 2013). However, in the case of the
Absorption approach, all the cost including fixed and variable are considered under the cost of
production at once only. In marginal costing both variable and fixed costs are considered
separately. The major difference between the two methods of costing is that marginal per-unit
cost can be computed but in the case of absorption only overall production cost is
computed(Bragg, 2019). There is a difference in the profitability of both the methods as in
marginal profitability would be higher in comparison to absorption.
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Annex B
In this annexure, management accounting technique has been applied to produce a financial
reporting document that states the details of the financial data of the organization through the
income statement made above (Ball, 2013). The computation of selling price per unit along with
profits per unit has been done using the management accounting technique. Recovery of
administrative costs has also been prepared in the statement above. It can be seen from the above
analysis that the profit earned by the company is not enough thus to increase the profitability of
the company the organization should focus on reduction of the administrative cost along with
other cost (Ball, 2013).
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Conclusion
Thus to conclude it can be said that it is very important to implement the management
accounting techniques in the organization such as Aerospace as it would help in correct decision
making and also help in the reduction of cost by using various cost-effective techniques. Also, it
can be seen that various appropriate techniques can be used to compute the cost of the product
which includes marginal and absorption costing. Management accounting is thus beneficial for
Aerospace as it helps in achieving desired objectives at minimal cost for the organization by
using different techniques and planning tools.
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References
 Ball, R., 2013. Accounting informs investors and earnings management is rife: Two
questionable beliefs. Accounting Horizons, 27(4), pp.847-853.
 Bobryshev, A.N., Tatarinova, M.N., Grishanova, S.V. and Frolov, A.V.E., 2015.
Management accounting in Russia: problems of theoretical study and practical
application in the economic crisis. Journal of Advanced Research in Law and
Economics, 6(3 (13)), p.511.
 Bragg, S., 2019. The difference between marginal costing and absorption costing.
[online] AccountingTools. Available at: https://www.accountingtools.com/articles/the-
difference-between-marginal-costing-and-absorption-costi.html [Accessed 20 Jul. 2019].
 Christ, K.L. and Burritt, R.L., 2015. Material flow cost accounting: a review and agenda
for future research. Journal of Cleaner Production, 108, pp.1378-1389.
 Libby, R., 2017. Accounting and human information processing. In The Routledge
Companion to Behavioural Accounting Research (pp. 42-54). Routledge.
 Maas, K., Schaltegger, S. and Crutzen, N., 2016. Integrating corporate sustainability
assessment, management accounting, control, and reporting. Journal of Cleaner
Production, 136, pp.237-248.
 Sarokin, D., 2019. What Are Examples of Managerial Reports?. [online]
Smallbusiness.chron.com. Available at: https://smallbusiness.chron.com/examples-
managerial-reports-24579.html [Accessed 20 Jul. 2019].
 Šiška, L., 2016. The contingency factors affecting management accounting in Czech
companies. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis,
64(4), pp.1383-1392.
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