Management Accounting Report: Financial Performance of Airdri Limited

This report provides a detailed analysis of management accounting practices applied to Airdri Limited. It begins with an introduction to management accounting systems, differentiating various types like job costing, price optimizing, cost accounting, and inventory management systems. The report then explores management accounting reporting methods, including inventory management, performance reporting, accounts receivable reporting, budget reporting, and cost reporting. Techniques such as marginal costing and absorption costing are examined for their role in preparing income statements. Budgetary control tools and their application for financial planning are also discussed, and the report concludes with a comparison of organizations adopting management accounting systems and how management accounting assists in solving financial problems and leading to success. The report uses practical examples and illustrations to clarify concepts, making it a comprehensive resource for understanding management accounting principles in a real-world business context.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and different type of MA systems.............................................1
P2: Management accounting report........................................................................................4
M1 Management accounting system's benefits regarding organization prospective.............6
D1: Integration of management accounting systems and management accounting reporting6
TASK 2............................................................................................................................................6
P3 Cost using appropriate techniques of cost analysis to prepare an income statement........6
M2 Techniques of marginal costing and absorption costing for proper documentation .......8
D2 Report contains for interpretation of data.........................................................................8
TASK 3............................................................................................................................................8
P4 Planning tools for budgetary control.................................................................................8
M3 Use of different planning tools for Airdri limited..........................................................10
D3 Planning tools which helps in handling financial issues................................................10
TASK 4..........................................................................................................................................10
P5: Comparison of organizations adopting management accounting systems.....................10
M4: Assistance of management accounting in solving financial problems and leading to
success ................................................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management Accounting system exists as internal part of company i.e. used to evaluate
and measure its process for manage of company. Managers uses accounting information for
prepare internal financial report, accounts and records for achieving business goals. Airdri was
first hand dryer manufacturer in world to get quiet mark from disturbance of moderation society
(Caglio and Ditillo, 2012).
This report covers management accounting and different types of management
accounting system. It will apply on Airdri Limited to describe of different methods of
management accounting reporting. Marginal and absorption costing methods are used to
calculate profit or loss for organization. Advantage and disadvantage of budgetary control tools
used in budgetary control budgets discussed in this report. The financial problems of an
organization and uses of management accounting system illustrated with practical
implementation.
TASK 1
P1 Management accounting and different type of MA systems
From: Management Accounting Officer
To: General Manager of the Airdri limited
Sub: Different Types of management accounting system
INTRODUCTION
Management accounting is the proposal of accounting information in order to describing
policies and activities. It helps the management to assist all it's function such as planning,
organizing, staffing, directing and controlling. It also analyze the operations and business cost
for making reports after helping to achieve business goals. In another words, it is act of making
meaning of costing data, translating financial data into useful information for officers and
management within a company. Management accounting is also called managerial accounting
and cost accounting.
MAIN BODY
Different Types of management accounting
There are many types of management accounting system and their role in combination
with many organizational process related to Airdri Limited are discussed. Types of management
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accounting are as follows -
Job Costing System – A job costing system is the process of collect information about
cost with a specific service job or production. This information may be provided in order to
suggest cost information to a customer according a contract where cost are recompense
(Nielsenet and et. al., 2015). The providing information is also useful to quality of a company's
approximation system which should be capable to quote prices that allow for a reasonable
profit. These information used for delegate inventoriable cost in manufacturing goods. A job
costing system is following three types of information -
Direct materials – The job costing system must be able to track scrapped and cost of
material that are used for course of the job. If materials remaining and returned to warehouse so
their cost less from job and after that returned to storage.
Direct Labor – Direct labor appointed to a job with time sheet, time card and with time
clock (networked) on a computer system.
Overhead – The job costing system in overhead include cost such as depreciation,
building rent and production equipment to pool costs etc. In the end of each accounting period,
total amount is applied on various open jobs for allocation methodology. Airdri limited can use
this system of management accounting when products are known to keep track to expense
order. They apply this job costing accounting procedure such as -
Receiving inquiry – customer afraid about price of material, quality of material and time
for complete order.
Estimate price of job – A accountant through job costing know customer preference and
taste.
Order receiving - After assurance of customer, order will be placed.
Production order – This helps to manage the orders received for particular production
department.
Cost recording – This cost recording in production process record every estimation
cost.
Completion of job – After completion of report, it is submitted to accounts department for final
job costing and compared with estimated cost.
Price Optimizing system – Price optimizing system is used for mathematical analysis
by an organization to control and determine prices of resources. Price optimizing system is also
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used to determine how customers will answer to different prices of services and products from
different channels. Price optimization can include operating cost, historic prices & sales, survey
data and inventories. Airdri Limited will use this form of management accounting system for
helping company to determine pricing structures for discount pricing, promotional pricing and
initial pricing (Parker, 2012). Price optimizing system include several factors such as
competitor pricing strategy, category goals and product life cycle before determining prices of
product for the organization.
Cost Accounting System – A cost accounting system mostly used by manufactures to
record production activities in a perceptual inventory system. Mainly, this accounting system is
designed for manufactures that tracks stream of stock continually through many stages of
production. It can be beneficial for Airdri in following ways
Flexible and simple – This cost accounting system will be effective for understand the concept
of different cost type and make organization flexible to execute the functions.
Participation and cooperation of executives needed by various departments – This will
check appropriate participation and cooperation in the construction process of cost accounting
system which can help administration in right ascertainment of cost of products.
Inventory Management system – This inventory management system tracks and
supervise flow of stocks from manufactures to warehouses and is a combination of procedures
and processes for maintenance and monitoring of goods products. It covers everything from
warehouses to shipping, production to retail and all occurrence of parts and stocks between.
Organizational process of Airdri limited can be coordinated with type of system to effective
flow of inventory and achieve efficient sales point of view with an organization (Burritt,
Schaltegger and Zvezdov, 2011). There are two essentials are adopted by company -
Replenishing and forecasting strategies – This assist an organization in advance
planning and management of cost requirement of an organization.
Management of goods both monetarily and physically – Several benefits like
appropriate stocks management and cost reduction is achieved with this.
CONCLUSION
It is concluded that management accounting important part of an organization. Different
types of management accounting systems applied by Airdri limited and after that getting many
benefits. These systems fulfill requirements of an organization.
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P2: Management accounting report
From: Management Accounting Officer
To: General Manager of the Airdri limited
Sub: Different methods used for management accounting reporting
INTRODUCTION
Management accounting reports are prepared by managers and these emphasizes on
preparing accurate reports of financial information for efficient decision making process
(Meredith and Mantel, 2011). For Airdri Ltd, these are very essential from the point of view of
determining performance and financial health.
MAIN BODY
Information from these managerial reports are kept secretly because of use only for internal
operations. Preparation of these reports is not mandatory but it can give immense benefits if
applied in system.
Importance of managerial accounting reports in various areas is as:
 Provide many choices for decision making
 Helps in controlling cost for management
 Price fixation and fair pricing can be done with these reports
 Assessment and measurement of employee performance
 Assists in financial planning process and in preparing quarterly budgets
 Airdri limited will assure to accuracy through these management report and it only
happen in case, estimates will be available on time.
Various methods of management accounting reporting applied to Airdri Ltd are as follows:
Inventory management reporting: Airdri Ltd needs to maintain inventory for
production and manufacturing purpose so that process can be smoothly carried out. Process of
inventory management begins with supervising purchases of stock items, work in progress and
preparation of finished goods to supply of these goods to customers. Carrying cost of inventory
can be reduced with the help of these reports. Accurate records of Airdri Ltd can be maintained
and it leads to avoidance of problems of stock-out, access inventory. These are useful for every
type of industry to maintain accurate balance of inventory.
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Performance reporting: These reports are maintained by managers for convenience of
Airdri Ltd in a way that analysis process becomes easy. Performance of employees and of
Airdri Ltd are ascertained separately. Important decisions are taken on the basis of these
performance reports for growth perspective. Also these reports provides right direction to
employees who have problems in area of improving performance. Initially standards of
performance are being set then it is compared with actual performance to find differences or
variances. There may be favourable or unfavourable performance outcome will be there,
appropriate action would required to be taken in case of unfavourable result. Performance
reports are prepared periodically for correct results.
Accounts receivable reporting: With the help of this report, credit collection process of
Airdri Ltd is ascertained (Beattie, 2014). This report shows separation of time taken by every
debtor for their outstanding payment in table form so frequency can be analysed. Customers
who are often taking goods on credit but not paying that on time, will be considered as
defaulters and their list will be prepared so that their remaining balances can be recovered. Also
restrictions and conditions will be put on credit collection policies of Airdri Ltd resulting in
enhanced cash flow activities. It is becoming tradition of recording bad debts which should be
reduced or eliminated in some cases. This is because extending higher rate of credit negatively
affects profitability of Airdri Ltd.
Budget reporting: Budgets are useful for every organisation including Airdri Ltd from
which expenses and revenues are mentioned. This acts as a tool for measuring performance
according to size of organisation. For a small company, single budget is prepared due to less
complexity but for a big organisation, budget is prepared for each department separately such as
marketing, sales, human resource, finance etc. Characteristics of budget reporting is that these
are made on the basis of available resources, past experiences, and future aspects. In the area of
managing human resources, these assists in determining incentives and benefits to employees.
Performance goals are being fixed for every employee and bonus is attached to their
performance.
Cost reporting: Cost reporting involves costing of every process involved in production
of products to their delivery of Airdri Ltd. Production costs includes raw material cost, labour
cost and overhead cost. Then total cost of production is divided among units produced to find
per unit cost. Profit is ascertained by comparing cost from selling price of goods manufactured.
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Cost can be fixed or variable. Fixed costs does not change with the change in quantity but
variable cost does.
CONCLUSION
It is concluded from above discussion that management accounting reporting is not compulsory
for every organization but it proves very essential in enhancing business performance at
operational level. Along with it, various methods of management accounting reporting helps in
analyzing financial health.
M1 Management accounting system's benefits regarding organization prospective
It makes easier to achieve various result and motivate to employee indirectly for better
performance (Collier, 2015). It increases bar of profitability regarding of capital budgeting and
budgetary control and increases indirectly bars profit of Airdri limited and after that company
able for reduce products pricing. With the help of this, simply making decisions in financial
statement and company have freedom and flexibility. It's helping in future prediction from past
results.
D1: Integration of management accounting systems and management accounting reporting
Both management accounting systems and management accounting reporting helps in
controlling functions and performance of management. They set measurement criteria so that
decision making contributes to growth of Airdri Ltd. Systems and reporting of management
accounting includes job costing, inventory management etc. Data collected from budgeting and
performance analysis are then later supposed to be useful in improving overall capabilities of
Airdri Ltd.
TASK 2
P3 Cost using appropriate techniques of cost analysis to prepare an income statement
Marginal Costing
Marginal costing is basically defined as technique of costing where variable cost is
charged to units of cost. It is characterised by valuation of stock, determining prices, profitability
and is also depend on ups and downs in total cost in an additional unit of production. It is
concerned with the price and quantity of product which is based on economies of scale. It assists
managers for taking decisions for replacing of machines, discontinuing a use of product or
service. It also makes an impact on the production level and on company's overall profit occurs.
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Income statement as per marginal costing
Amount (£)
Sales value (35*600) 21000
less:
Cost of Production (6+5+2) -9100
closing stock (100*13) -1300
variable overheads -7800
Contribution 13200
less:
variable sales overheads (600*1) -600
fixed cost -2000
Admin & selling cost (700+600) -1300
-3900
Total 9300
Absorption Costing
Absorption costing is an oldest and widely using techniques of ascertaining costs. It is
suitably based on direct cost with an addition of overhead costs. It is required for external
purpose in financial reporting and for income tax reporting (Bedford, Malmi and Sandelin,
2016). This costing is often contrasted with variable or direct costing. It is a system that is used
in valuing inventory items. This costing is required for preparing reports for financial and for the
purpose of valuing stock.
Income statement as per absorption costing:
Amount (£)
Sales value (35*600) 21000
less:
Cost of Production 9600
Gross Profit 11400
LESS:
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Fixed and variable cost:
variable sales overheads (600*1) 600
Admin & selling cost (700+600) 1300
Less: over absorbed fixed production overheads -100 -1800
Net profit 9600
Break even point: Break even point is a point lies when two segments total; cost and
total revenue interact at a point where their is no loss or gain. In other words, it is a point at
which total cost and revenue cost are equal. It is most probably used for financial analysis,
managers, marketers, accountants etc. It plays relationships between sales, costs and profit. It
makes a business more effective and for achieving higher results.
Margin of safety: Margin of safety is basically distinguish in between actual sales and in
break even sales which has an important part in any business because it helps to tell about
reducing costs in revenue effecting on break even. It is also helpful in figuring out and show
about a business safety in producing products. It is methodically calculated by a use of stock
intrinsic value.
M2 Techniques of marginal costing and absorption costing for proper documentation
In each business organization, diverse accountancy framework are followed with the end
goal to accomplish greatest gainfulness. This business of "Airdri" depends on an organization'
exhibitions which is decided by utilizing right accounting method. In future finance
arrangements, above classifying information are effectively utilized in order to accomplish future
objectives. It is utilized to break down actual and standard cost adjusts. Methods for example,
objectives sincerity and provide predictable input. Give consistent preparing and advancement to
record administrators (Andreasen and Rosenberg, 2011).
D2 Report contains for interpretation of data
According to previously mentioned data, organization can utilize both of strategies that
would give more applicable benefit. Since, in event that they are running with minimal costing
they cause £9300 net benefit with 600 units of genuine deals. While on the off chance that they
are running with assimilation costing they are getting £9600 of net benefits with similar units.
Contrast of 300 units as net procuring is gathered from this examination (Socea, 2012).
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TASK 3
P4 Planning tools for budgetary control
Budgetary control is a method of controlling costs which includes comparison between
actual performance and budgeted performance establishing responsibilities and coordinating the
departments, preparations of budgets and acting upon outcome to succeed maximum
profitability. It refers to see that how manager will utilize budgets to control costs and monitor
operations in a presented accounting period. In different words, budgetary control is a process of
set performance goals and financial by managers with budget, analyze actual result and adjust
performance. Now-a-days, organizations are becoming more advanced in planning strategies
which has replaced from traditional budgeting towards cloud based software and tools. Online
budgeting help to provide companies the way to manage budgets (What Are the Advantages and
Disadvantages of Using a Static Budget. 2017). Types of planning tools for preparing
applications and forecasting budgets are explained below:
SCORO – This planning tool helping for combining several features of budgeting with
another tools to manage integral company in one system and as a company whole providing an
integral plan. While managing project budgets provide facility of manage available resources and
various expenses with an organization. There are advantage of this tool is for Airdri limited -
 Main advantage of this tool is planning and forecasting
 Professional and invoicing service status
 Evaluation of financial reports and analysis of budgeted targets
Disadvantage of this planning tools are for Airdri limited -
 This planning tool not provided accurate information so Airdri limited will not be getting
accurate information.
 Getting too much data for analysis so data can not handle properly.
Prophix – Prophix has been working as a software solution for companies to manage
Budgetary control. It means that tools involves various smaller tool for planning of budgets and
manage to resources of company. Advantages of this planning tool regarding Airdri limited -
 Proper statutory, management reporting and financial reporting which making better
decision and performance evaluation.
 Profitability modeling and Optimization which objects for highly sustainability and
profitability.
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 Cash flow will assist of accurate planning which complete liquidity aspects of an
organization.
Disadvantage of Prophix regarding Airdri limited
 There should be organizational hierarchies for forecasting and planning.
 For member time perspective rolling 12 month should come standard.
 There is Prophix consulting for sales product and customer that is tough to handle too
much.
M3 Use of different planning tools for Airdri limited
Planning tools are instruments that guide to Airdri limited for implementation of a
program, initiative and innervation. They provide description about the county implementation
plan and for development. Planning tools are helping for organization like -
 Organization timeliness
 Things to do checklists
 Action item checklists
 Sample meeting agendas
D3 Planning tools which helps in handling financial issues
Every company faces various financial issues regarding their operations such as quality
of products, unavailability of funds and many more. Airdri is a small scale organization which
faces intense problem of unavailability of resources. Planning tools such as forecasting helps in
handling this issue as they involve prediction of future events from which mangers of Airdri can
ascertain their problem areas. Other planning tools such as contingency and scenario helps in
helps in developing future range of possibilities and their prevention's by which a company can
tackle problem of lack of materials and other resources.
TASK 4
P5: Comparison of organizations adopting management accounting systems
Organisations face challenges while operating business operations. This creates critical
situations subject to manage the financial resources in organisation. There are type of financial
issues such as decrease in revenue, increase in costs, and reducing customer satisfaction faced by
Airdri. These issues can be resolved by following tools such as:
KPI
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