Management Accounting Report: Airdri Ltd. Case Study Analysis

This report delves into the realm of management accounting, outlining its core principles and essential requirements. It explores various management accounting reporting methods, including inventory management reports, account receivable reports, job cost reports, and performance reports. The report also examines different types of management accounting systems, such as cost accounting, inventory management, job costing, and price optimization systems, highlighting their benefits and applications within a business context. The report also discusses the application of these systems in a case study of Airdri Ltd., a hand dryer manufacturing company, to illustrate how management accounting assists business operations and addresses financial issues. Furthermore, the report covers planning tools used in budgetary control and compares how organizations adapt management accounting to deal with financial issues, providing a comprehensive analysis of management accounting practices.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1Explain the management accounting and the essential requirements of management
accounting...................................................................................................................................1
P2 Different methods used for management accounting reporting.............................................3
M1 The benefits of management accounting systems and their application within a business. .5
D1 Management accounting system and management accounting reporting.............................5
TASK 2............................................................................................................................................5
P3 Cost using appropriate techniques of cost analysis to prepare income statement using
marginal and absorption..............................................................................................................5
M2 Range of management accounting techniques and produce appropriate financial reporting
document.....................................................................................................................................8
D2 Produce a financial reports that accurately apply and interpret data for a range of business
.....................................................................................................................................................8
TASK 3............................................................................................................................................9
P4 Advantages and disadvantages of various type of planning tools used in budgetary control9
M3: Analysis of various planning tool and its application for forecasting...............................10
D3: Evaluation of planning tools for responding to financial issues........................................10
TASK 4..........................................................................................................................................11
P5 Compare the ways how organisations are adapting management accounting.....................11
M4: Analysis of planning tools to deal with financial issues....................................................11
CONCLUSION..............................................................................................................................12
REFERENCES .............................................................................................................................13

INTRODUCTION
Management accounting is another form of managerial accounting. Management
accounting not only assist the management structure in maintaining better formulation and
execution of business operations but also helps to manage the departments in effective manner
(Zopiatis, Constanti and Theocharous, 2014). Meaning of management accounting and essential
requirement of types of management accounting systems will be explained in this report .
Different methods of management reporting which remain integrated with management
accounting systems are also considered in this report. Type of cost accounting systems in terms
of analysing the profitability and performance of organisation also defined in this report.
Planning tools which assist budgetary control process for sustainable business decision making
defined in this report. Use of management accounting system in terms of solving the financial
issues of organisation also defined in this context. Comparison of organisation with two
organisation that how management accounting assist the business operations. Airdri which is a
hand dryer manufacturing organisation taken to elaborate the concept of management
accounting.
TASK 1
P1Explain management accounting and the essential requirements of management accounting
Management accounting
Accounting and bookkeeping done for management perceptive is considered as
management accounting. Management accounting contains accounting concepts, presentation of
accounting information, policies, standards, management strategies and plans are considered in
this context. There are various types of business transactions, events, incidents happened in day
to day business operations. Proper recording and retention structure helps in managing these
information in strategic and effective manner. Management accounting is one of the important
aspect in terms of managing operations and department of attain the desired outcomes of
organisation (Zainun Tuanmat and Smith, 2011).
Management accounting contains in depth knowledge and concept regarding effective
operation and management of business. Collecting valuable information, data and source to make
effective management plans and strategies are the main elements considered in this report. There
are separate rules and regulations made in terms of recording the transactions as monetary,
1

financial, non financial, patent rights, contracts and agreements are recorded in effective manner
so that proper evaluation and revaluation made for effective decision making plans.
Management accounting system provides a tool to managers and accountants to track the
management record and performance of organisation. Business decision making and strategic
planning is the essential aspect in terms of determining the aim and objectives of business.
There are type of management accounting system are used by organisation as per
organisational structure:-
Cost accounting system: This is a system which helps to identify the key elements and
maintain effective cost structure for association. Minimising the cost and enhancing the
profitability and revenue growth is the main objective of cost accounting system (Windolph and
Moeller, 2012). Cost accounting mainly helps to incorporate the cost form various departments
and centralised them in a single format to calculate overall cost of operations and functions.
There are type of complicated and critical situation found in business environment due to which
organisation has to pay extra cost to overcome those situations. An effective cost accounting
system provides a path and structure to track the cost of production, administration and
operations of business. This accounting system mainly used by manufacturing and production
organisation.
Inventory management system: This is the main accounting system which helps to
track the volume of stocks and inventories used for manufacturing and producing goods and
services. Supply chain management, production management, analysing the economic order
quantity are the main elements considered in inventory management system. It covers the
production to retail, warehouse shipping and the movement of stock and parts between
production departments. There are type of inventory control method are formed to manage and
control the level of inventories as EOQ method, ABC method to track the performance of
organisation. Market tracking, inventory levels for parts and finish products, automatic
recording, barcode reader system, integration with ERP or maintenance software. Airdri will be
able to manage the order of quantity of raw stock and evaluation the quantity to be required for
minimum product line.
Job costing system: This is the costing system which mainly used by organisations to
consolidate the information and details in terms of determining the cost of each department and
section. It helps to assume the cost of different sections and contents in terms of analysing the
2

cost and structure for better execution and enforcement of cost form each departments and
sections. Job costing mainly associated with the organisation in terms of making the effective
structure of business and this system enables the manufacturing cost and individual products or
baths of products. With the help of analysing the costing structure of Airdri company be able to
analyse the cost of per product manufactured for a particular time.
Price optimisation system: This is one of the effective system which mainly associated
with optimising the cost and determining the price of products and services (Turan, 2015). This
system enables the use of mathematical analysis and analyse the company in terms of
determining the customer response and setting the price of products and services. This system
helps managers and accountants to elaborate the cost of products and services by analysing
demand and supply graph. This system will help Airdri to decide the cost of each product.
Management information system: This is one of the trending and important accounting
system which mainly associated with collecting the information from different sources and
storing them with in the a data base. A summarised information in respect of organisation's
performance and growth for a particular duration is published by this system. A computer
generated information issued under MIS system helps to forecast and elaborate the
administration and financial information in systematic manner.
P2 Different methods used for management accounting reporting
Management accounting reporting is a frame work of incorporating the financial and non
financial information in a single format. In Order to make a effective assessment of companies
performance management of Airdri Ltd. Company need to make proper use of financial
exchange in a very successful manner. So, they maintain the record of all data for managing
daily enterprise transaction in a most viable and effective manner. A proper managing of reports
will help in effective use of assets which are used by company to find out whole performance of
organisation at the time of accounting year. Accounting reports are used normally with a
particular end of targets to investigate all the gains and losses of the firms within a span of time.
This is recognised in a most viable as well as effective reporting framework for taking a effective
decisions for meeting future profits or gain for the companies.
This will be useful in terms to assess present position of firms for making future planning
and investment. Mainly it is identify for gaining competitive advantages over another
organisation or enterprise competitors. If they will arise an presence of Airdri Ltd. Company,
3

management aid in leading inside activities in a most reliable manner by using detailed as well as
systematic information of firms. Identification of detailed data reports which is ready by using
various data through different sources (Taylor, Doherty and McGraw,2015). All important
information or data can be exchanged to their different companies for knowing a financial
position of the business. Their are various types of accounting systems which are used by Airdri
Ltd. Company in their daily business activities which are as follows: Inventory management report: In this small enterprise like as Airdri Ltd. Company have
to manage their physical stock or manufacturer goods. For this, company can use
managerial accounting system for making a process of manufacturing in an efficient
manner. This accounting reports mainly involve per-unit overhead cost, hourly
employees cost and inventory cost. After that company can compare by various assemble
lines in their enterprise for highlighting the areas they have to make improvements to
provide bonuses to those employees who perform best within the department. There are
various techniques which is very powerful to manage as well as control their general
inventory records. Account receivable reports: In this report, it is very difficult tool for managing the
statement of cash flow if company will extent the credits to buyers of their enterprise. It
breakdown the balances of buyers through knowing how long they can owned. This is
most aging accounting reports which involve different columns for invoices which are 30
days late, 90 days late and 60 days late and so on. Manager of Airdri Ltd. Company can
use this report for identifying issues with the process of organisation collection. If
customers are not able to make payment of their balances then organisation have to
tighten the policies of credit. Job cost report: In this accounting report, they have to show all the expenses for a
particular project which is financed to small enterprises. It is mainly matched with a
predictive revenue for evaluating their profits of job's. It will aid in finding out high level
of earning areas of enterprise so they can concentrate on additional efforts instead of
wasting money and time on jobs with a lower level of profits margin. This accounting
report also help in analysing expenses at the time of progress project for correcting areas
of wastage before price spiral out uncontrollable. In this, which is a vital perspective in
4

order to make a valuable information by managing present job position as well as for
assessing a total period of time they have to accomplish the task.
 Performance report: This reporting method helps to analyse the performance as well as
mangers will evaluate their department control and performance cost. Estimated budget
within the period is mainly based on actual expenses within previews years. If this small
enterprise was substantially over the budge within previews year as well as couldn't find
approaches to trim cost. Managers as well as owners can also utilize this [performance
budget may require to enhance higher level of accuracy. Principally, this accounting
report are chiefly helpful to dissect the real organisation position in term of various
organisation.
M1 The benefits of management accounting systems and their application within a business
Management accounting plays significant role in term of decision making and strategic
planning process (Springer, Berlin, Heidelberg, Riisgaard and Gibbon, 2014).
Inventory management system: Effective forecast and important information related to
inventory management helps to attain sustainable growth and development subject to stock
management of organisation.
Job costing system: It mainly associated with financial and statistical analysis for
managers and accounts to determine the accurate cost of services and products.
Price optimisation method It interprets the financial information to enable the growth
opportunities for organisation by deciding and price of products and services.
D1 Management accounting system and management accounting reporting
Management accounting reporting and accounting system mainly associated with each
analysing the financial information in terms of forecasting the future and make effective
management strategies. Management accounting system helps to consolidate important
information and details and reporting methods helps to incorporate them to make a sensible
conclusion for decision making and development plans.
5

TASK 2
P3 Cost using appropriate techniques of cost analysis to prepare income statement using
marginal and absorption
Cost is the main element which remain the part of the business operations and functions.
There are type of cost remain associated subject to execute the function and business process.
Cost is known as a consideration made by the organisation in terms of fulfil project requirement
and details for better enhancement and plan. There are type of cost remain associated with
production and manufacturing cost which are defined as follows;
Fixed cost:This is the cost which is also considered as an uncontrollable cost. The cost
which mainly associated with fixed factors and affect the plans and structure of business. Factory
rent, taxed and rates, interest, depreciation (only if there is a use of straight line method) are
some type of fixed cost.
Variable cost: This is the cost which mainly associated with the production units. This
cost mainly associated with analysing the cost by variation in per production and incremental in
marginal units. This cost vary as per the change in per unit by change in fixed expenses. Variable
cost get change and affected due to variations in production volume.
Semi-variable cost: Semi variable cost considered as a cost which remain fixed at certain
level and become change after variations in the variable portion of organisation. It is also
considered the mixture of both the variable components as fixed cost regarding production and
consumption (Schaltegger and Csutora, 2012).
Marginal costing: This is the cost which mainly associated with analysing the marginal
cost by considering the variable cost charged to units of cost. The fixed cost for specific period
the complete written against the contribution. Marginal cost is the composition of direct material.
Direct labour, direct expenses and variable overheads. This mainly helps to bifurcate the variable
cost and fixed cost, valuation of stock, determination of price, profitability. There are concerning
marginal and cost ascertainment considered in marginal costing. There are special techniques
and decision making techniques used under marginal costing. Marginal costing plays vital role in
terms of decision making process.
It assist the managers in taking the number of business decisions as replacement
decisions and the discounting a product or services. It also helps the management in ascertaining
the levels of activity.
6

Calculation of net profit by using marginal costing method:
Particulars Amount
Sales revenue = (selling price * no. of goods sold = 55 * 600) 33000
Marginal Cost of goods sold: 9600
Production = (units produced * marginal cost per unit = 800 * 16) 12800
closing stock = (closing stock units * marginal cost per unit = 200 * 16) 3200
Contribution 23400
Fixed cost ( 3200+1200+1500 ) 5900
Net profit 17500
Absorption costing: A method which contains overall cost while calculating the
profitability and loss for the year. This also helps to consolidate the information and details to
review the performance of organisation. It contains the cost in various structural form which
mainly analyse the cost and operations of business. It is also considered as a full costing system
and analyse the cost of operations by considering the essential elements for better evaluation and
effectiveness.
Computation of net income by using absorption costing method:
Particulars Amount
Sales = (selling price * no. of units sold = 55 * 600) 33000
Cost of goods sold = (total expenses per unit * actual sales = 23.375 * 600) 14025
Gross profit 18975
Selling & Administrative expenses = (variable sales overhead * actual sales +
selling and administrative cost = 1 * 600 + 2700) 3300
Net profit/ operating income 15675
Break-Even analysis: Break even analysis is a technique which mainly used to analyse
the constant point at which the cost of operations remain equal with the income. It is a strategy
which principally used to break down the consistent time when the cost of activities stay measure
up to with the pay (Scenario planning, 2018). This also helps to consolidate revenue of
organisation in a single format and a graphical description made to elaborate the essential aspects
of break even analysis. This additionally merges income of association in a solitary configuration
and a graphical depiction made to expound the fundamental parts of make back the initial
investment investigation.
A. Total number of product sold
Sales per unit 40
7

Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
b. Calculation of break even point in accordance to sales revenue
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution / sales * 100 30.00%
BEP in sales 20000
c. Calculation for getting desire profit of 10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
Margin of safety: this is considered as a difference between the actual sales and break
even sales (Riisgaard and Gibbon, , 2014). There is a difference is calculated in this techniques
which mainly defines the difference between the actual sales and break even sales. Margin of
safety mainly helps to elaborate
d. The margin of safety, if 800 products are sold
Actual sales in units 800
Break even sales in units 500
M2 Range of management accounting techniques and produce appropriate financial reporting
document
Both the marginal and the absorption costing helps in analysing the cost of operations and
departmental cost in various form. There are two type of accounting techniques are used above to
calculate the profitability of organisation which are as follows;
8

 Marginal costing tools: It is a main tool which mainly consolidate the key information
and aspect remain associated with exploring the business decision techniques and
analysing the competitiveness of business.
 Absorption costing: This is the costing method which analyse the cost by considering
the variations and the changes in over all cost.
 Historical cost: this indicates towards the cost and expenses which are incurred towards
analysing the historical cost in terms nominal cost rather than original cost.
D2 Produce a financial reports that accurately apply and interpret data for a range of business
In regard to manage different issues that are emerges in an association in coming time
they have to make utilization of different costing technique (Moser, 2012). It would be make
effective perspectives to the organization which will be basic for compelling basic leadership. In
regard to utilization of marginal costing the organization used to make adequate measure of
benefit with 17500. While in the event that they are utilizing absorption costing they are getting a
net benefit of 15675. All the variety is being examine by utilizing complete settled cost thought.
TASK 3
P4 Advantages and disadvantages of various type of planning tools used in budgetary control
Budgetary control is a process of the important process in terms of managing the
forecasting and analysis related to financial management process. Financial plan is said to be one
of the compelling framework that can give particular data about various cost and costs acquired
by Airdri plc used to caused amid the time. It is the future estimation of aggregate deals and
benefit they will win in not so distant future.
Budgetary control process:
It is said to be one of the powerful procedure which will accommodating for an
association to assess add up to benefit and costs for future period and movement. Under this
procedure, planned and genuine angles those are utilized to gauge and expel all sort of contrast
that are emerges in an association (Mistry, Sharma and Low, 2014). There are different valuable
focuses that comprises of compelling procedure to cop-up with different spending needs.
Arranging is one of the basic apparatuses that can be considered for controlling different issues
those are emerges in an association. Some of them are talked about underneath:
9

Forecasting tool: It is known as one of the successful procedure of planning estimation
of forthcoming past and current information in more typical way to analyse patterns. Evaluating
future can't need to comprises of giving different information those are gathered inside an
association. It is most extreme pivotal procedures that is considered by business for arranging
their future undertakings.
Advantages: The fundamental point of elements to furnish business with profitable data
to business which can be utilized to settle on choice in regards to what's to come.
Disadvantages: These are generally relying on subjective estimation which would
depends on subjective sources of info and hereafter not having the capacity to considered as
more solid.
Contingency tool: this most equal forecasting tool which helps to sort out the contingent
situation and circumstance in effective manner so that planning can be resolved in effective
manner.
 Advantage – This planning tool helps in reducing business risk as it develops preventive
measures for future contingencies whether man made or natural. Airdri Plc develops
plans and strategies in order to prepare themselves for future risks.
 Disadvantage – This planning tool involves intense planning which requires high costs
and time. If there is no contingency in future than all the planning will result in vain. This
tool is uncertain in nature.
M3: Analysis of various planning tool and its application for forecasting
In order to conduct budgetary control, Airdri Plc needs to use various planning tools such
as forecasting, contingency and scenario (Klychova, Faskhutdinova and Sadrieva, 2014).
Forecasting tool usually used by all companies whether large or small scale including Airdri Plc
as it includes determination of several costs and expenses included in the business operations.
Contingency tools are appropriately applied by large scale companies as this tool requires ample
of money and time. This tool helps in controlling business risks which is involved in external and
internal business activities, some of these risks are natural disasters, strike, lock outs etc. Under
Scenario tool, a whole range of possibilities are developed by manager of the organisation in
order to prepare preventive measures due to which this technique is followed by large and
medium scale organisations.
10