Management Accounting Report: Airdri Ltd Case Study and Analysis

This report provides a comprehensive overview of management accounting, focusing on its application within the context of Airdri Ltd, a small manufacturing company. It explores various management accounting systems, including cost accounting, inventory management, job costing, and price optimization systems, detailing their importance in decision-making processes. The report delves into different management accounting reporting methods such as cost reporting, budgeting, and execution reports, highlighting their roles in evaluating performance and aiding in financial planning. It also examines a range of management accounting techniques, including financial planning and financial statement analysis, and their application in achieving organizational goals. The report also discusses the significance of budgets as control tools and the use of planning tools to address financial problems and drive sustainable success. Overall, the report provides a detailed analysis of how management accounting principles and practices can be effectively utilized to support strategic decision-making and improve organizational performance.

Management Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................4
Management accounting and requirements of essential kind of management accounting
systems........................................................................................................................................4
Explain different methods used for management accounting reporting.....................................5
TASK 2............................................................................................................................................8
Range of management accounting techniques............................................................................8
TASK 3..........................................................................................................................................12
Budget an important tool for control.........................................................................................12
Use of different planning tools and their application for preparing and forecasting budget.. . .13
TASK 4..........................................................................................................................................13
Management accounting to respond to financial problems.......................................................13
How in responding to financial problems, management accounting can lead organisation to
sustainable success....................................................................................................................15
Planning tools for accounting help to solve problems and support organisations with
sustainable success....................................................................................................................15
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting which also known as managerial accounting, chain of activities
by evaluating business cost and operations helps in prepare financial reports, records. It helps to
manager in taking important decisions for achieving goals and objectives. On other hand it
means managing financial and costing of data then translate into useful information within
management and organisation. This report is based on Airdri which is an small manufacturing
company that produce or manufacture hair dryers and accessories to give major attributes to
consumers. This report is based on various management accounting system and their methods
with their critical evaluation. Further it evaluates about management accounting techniques and
practical evaluation of accounting terms. It also includes planning tools and techniques and their
advantages with disadvantage and at last how organisation respond to management accounting
system by defending various problems (Arroyo, 2012). It also includes budget as an important
planning tool and technique to control each and every activity in an effective manner.
TASK 1
Management accounting and requirements of essential kind of management accounting systems.
Management accounting use by managers for provisions of accounting knowledge and
information before making important decision within their organisation and it helpful for
management and their performance to control works and activities (Hasniza Haron, Kamal
Abdul Rahman and Smith, 2013.). In preparing management accounting organisation have to
build reports and accounts that helpful in taking accurate and timely financial and statical
decisions by managers in day to day operations. Management accounting enables to managers
and others in taking crucial decisions and provides cost of goods and services in both condition
profitability or non profitability. Management accounting essential while Airdri taking important
decision such as open a new venture and while building budget. There are kinds of management
accounting systems that are activity based costing, cost accounting system, inventory
management system, job costing system and price optimization system (Laine, Paranko and
Suomala, 2012).
There are some key areas in which management accounting systems plays very crucial role that
are as follows:
For long and short term planning:

Management accounting enables in both long term and short term planning and
implementation for taking future decisions. It helps for long term plans and policies, strategic
management and formulation of various strategies according to market trends and interest.
Managing information system:
The management accounting system helpful in managing and running information
management system at every level in organisational hierarchy.
Management accounting systems:
Management accounting systems are collection of information and statistics by taking
help of external parties such as stakeholders, regulators and various lenders by obeying
principles of accounting (Klychova, Faskhutdinova and Sadrieva, 2014.). For an organisation
they have to follow various kinds of accounting systems after accessing needs and wants of
clients of particular organisation.
There are kinds of management accounting systems that are as follows:
Cost accounting system:
Cost accounting system or product costing system that is a structural criteria use by
organisation to analyse cost, profitability and inventory valuation by controlling various kinds of
expenditure (DRURY, 2013).. Finding accurate cost of goods and services are significant in case
of Airdri Ltd to find out potentiality. So it require for estimation of various kinds of cost,
profitability and value of organisational products and services (Maskell, Baggaley and Grasso,
2016. ).
Inventory management system:
Inventory management system is a combination of technology and various kinds of
processes that helps in oversee maintenance of products which are stocked, assets of
organisation, raw materials and finished products (Boyns, Edwards and Nikitin, 2013.).
Inventory management system helps in evaluation of every item of inventory and information
that associated with it. In case of Airdri it uses inventory management system to record all
necessary information.
Job costing system:
In job costing system involves chain of activities for collecting information regarding
kinds of cost while production or service job. It is beneficial at time of producing different goods
that are totally different from each other.

Cost plus pricing:
Cost plus pricing refers to adding or including markup to cost of goods and services to
reach at selling price. In that pricing direct material cost, direct labour cost and overhead cost for
a product by adding to a markup percentage to reach at price of a product (Arroyo, 2012).. It
also be used within a consumer contract in which seller reimburse the seller for all costs that
incurred and pays negotiation profit with cost incurred.
Price optimization system :
Price optimization system used is an application that use for set prices and it is an
decision making process that uses employs data, software and algorithms to bring results in
proper manner (Malmmose, 2015.). It is most useful in determination of prices that helps in
attaining goals and objectives. Hence various kinds of management accounting system are
important for any organisation in taking important decision in terms of price, inventory and
many more.
Explain different methods used for management accounting reporting.
Management accounting which focus on collecting data and information with help of
financial accounting. It is very useful for preparing financial statements, income statements with
cash flow with balance sheet that helps in checking viability of a business project. Organisation
uses various kinds of methods or methodologies for accounting reporting that are as follows:
Cost reporting:
Cost reporting is one of important method in predetermined of price of products and
services. It helps in estimation of fixation of pricing, over head cost, labour cost and many more
pricing strategies comes under it (Cheng, 2012.). In cost reporting whole cost divides into total
items created into it and it helps to managers to oversee price of products and services with
selling cost. It is one source for planning and implementing various pricing strategies.
Budgets:
Budget is one of most important accounting tool that give direction and estimation of
spending plans and controlling measures of it (Burkhard and et.al ., 2012.). Budget managerial
accounting are very much critical for acquiring performance of an organisation and build as a
whole business in which department wise. Organisation build an overall budget to understand
their grand scheme of their business. In case of Airdri Ltd they build an effective budget by
evaluating income and expenditure so that important decisions should be taken.

Execution reports:
Management and accountants take benefit from various expenditure plans by contrasting
income and expenditure and by their sum (Allen and Desroches, Nyse Group, 2014). An
organisation implement budgets and procedures after analysing the entire data and statistics by
listed report performance.
Benefits of management accounting:
for an organisation management accounting plays crucial role that are as follows:
Management accounting helps in evaluating actual performance after comparing income and
expenditure with desirable performance (Leitner, 2013.).
It enables to manage and control by maximise capital employed that are crucial factor in
manufacturing of products and services.
In case of Airdri Ltd. To increase profitability they measure current position of an organisation
and evaluate by past performance also.
Budget report:
Budget report is an internal report used by an management by comparing estimation,
budget and their projections by comparing actual performance with predetermined goals and
objectives (World Health Organization. Management of Substance Abuse Unit, 2014.)
Performance report:
These reports are prepared to assess all business and workers performance. It aids firm to
develop effective strategies for their growth (Johansen and et.al ., 2014.). Airdri Ltd manger
produce this report to examine that its enterprise are performing appropriately or not.
Inventory and manufacturing report:
This is considered as a summary of items which are connected to company. This
facilitates comprehensive accounts of inventory or many products or services which served
through Airdri Ltd to their clients (Bergman and Bowe, 2012.). With the assistance of this they
may minimise the complexity into supply chain management (Hilton and Platt, 2013.).
Integration of management accounting system and management reporting within
organisational process:
Management reporting Integration with organisational process
Budget report Budget report integrate with organisational

process, in case of Airdri Ltd to reach at
accurate work and desirable outcome. With
help of budget an organisation can predict
about income and expenditure at every stage of
organisation and their respective process
(Contrafatto and Burns, 2013.).
Performance report Performance report is one of important aspect
in which organisational process should be
integrate with performance of an individual by
evaluating their key skills and accordingly
process and desirable results should be
accomplished (Grötsch, Blome and Schleper,
2013.).
Inventory and manufacturing report Inventory and manufacturing report is most
significant aspect that helps in allocation of
inventory and manufacture products and
services as require each step of organisational
success (Hoque, A. Covaleski and N.
Gooneratne, 2013). It gives direction for
accomplishing desirable goals and objectives.
Therefore, reporting within management accounting system that cover whole aspects of
company as well as integrates overall activities and crucial method for accomplishing all
organisational performance. Whole business concern process are interconnected with one
another in order to optimise their various costs of activity.
A) Job costing methods
Costing method:
Product costing method use for assigning cost for manufacturing products and services
(Allen and Desroches, Nyse Group, 2014). The major costing method are process costing,

direct costing and throughout costing and that applies on different production and decision
environment.
Batch costing method
Batch costing method is adopted in areas by calculating cost of each batch in which
consist of advertisements that can be ascertained by dividing cost of a batch by no. of items that
produced in a particular batch (Hoque, A. Covaleski and N. Gooneratne, 2013.).
Contract costing method:
Contract costing is the method of tracking costs that associated with particular contract
from a customer. For an example if an organisation bids for a large construction project with
their consumers and two parties are agree in a contract for a certain kind of reimbursement
( Grötsch, Blome and Schleper, 2013.).
B) Process costing method:
Process costing is a significant cost that use for assigning costs to various units of
production in an organisation by producing products in large quantity in homogeneous way (
Contrafatto and Burns, 2013). Process costing is cost of a product in each and every process.
TASK 2
Range of management accounting techniques.
Management accounting to reach at desirable goals and objectives organisation have to
apply kinds of tools and techniques that are as follows:
Financial planning:
The first and foremost objective of financial planning is to gain maximum profit and
enlarge business opportunities. Main goal of financial planning is to plan every aspect and then
coordinate according to planning (Lukka and Vinnari, 2014.). Hence it is one of most important
tool to execute plans and policies in an organised form. In case of Airdri ltd. They record all
financial works and procedures to comply with changes (Baker and Ricciardi, 2014). Also
through this respective company can ascertain their long therm as well as short term objectives
and also build a balanced plan in order to accomplish that objectives.
Financial statement analysis:
In financial statement consist of profit and loss account and balance sheet which come
under important financial statements and evaluated under various time duration (Cederholm and

et.al ., 2015.). It helps in analysis of management activities with growth of organisation (Leitner,
2013.).. It can be possible by various statements, financial accounting and profit and loss
analysis. Through this techniques Airdri Ltd can examine the activities of management with
their organisational growth by preparing the balance sheet, profit and loss statement and many
more.
Cost accounting:
Cost accounting is an significant tool and technique that enables in capture companies
cost of production by product wise, process, department and branch wise and many more. In that
cost data should be evaluated by predetermined goals and objectives (Modell, 2014.). In cost
accounting comparison between two costs helps them to finalise factors or reasons that bring
difference between two costs. With the assistance of cost accounting techniques respective
company can obtain manufacturing costs by evaluating the cost information through pre planned
objectives.
Income statement:
Income statement or profit and loss statement is one of most important financial
statement of an organisation that shows about revenue and expenditure in a particular time frame
(Lavia López and Hiebl, 2014.). It shows about how revenue and income should be transform
into net income or net profit. With the assistance of this Airdri Ltd can get to know that whether
firm is in profit or in loss.
To calculate various income and expenditure organisation have to evaluate various kinds of costs
that are as follows:
Techniques:
Absorption costing: Absorption costing in a managerial accounting cost method of all cost that
associated with production of a particular goods and services (Fisher and Krumwiede, 2015.).
In that cost not only includes cost of materials and labour cost but also includes variable and
fixed cost. It is also known as full costing.
Marginal costing:
Marginal cost of production refers to change in total cost that brings after producing an
additional unit or item (Talley, 2017.). The main motive of marginal cost is to evaluate at which
point organisation can gain economies of scale. In marginal cost includes all types of cost that
varies from level of production.

Production cost per unit:
Absorption Costing = £40/unit
{10+20+5+100000/20000=40}
DM 10
DL 20
VOH 5
Total fixed production overhead cost = £100000
Use standard volume of 20000 units to absorb the fixed production overhead cost
Selling price = £50
Absorption cost = £40
Total production cost:
Budget:
Absorption
costin
technique
January
Production
Cost
Per Unit Total
£ £
DM 10 18000x10 180000
DL 20 18000x20 360000
VOH 5 18000x5 90000
FOH 5 90000
40 18000x40 720000 w1
Total cost of sales:
BUDGETED COST OF SALES
: January

£
Cost of production w1 720000
Opening Inventory 0
Closing inventory -80000
COST OF SALES 640000
Absorption costing:
ABSORPTION COSTING:
BUDGETED PROFIT OR LOSS
STATEMENT January
PER UNIT TOTAL
£ £ £ £
SALES 50 800000
COST OF PRODUCTION
DM 10 180000
DL 20 360000
VOH 5 90000
FOH 5 90000
40 720000
OPENING INVENTORY 0
CLOSING INVENTORY -80000
COST OF SALES -640000
STANDARD PROFIT 160000
ADJ. FOR UNDERABSORPTION -10000
BUDGETED PROFIT 150000
ABSORPTION COSTING: ACTUAL PROFIT OR LOSS STATEMENT
ABSORPTION COSTING: ACTUAL
PROFIT OR LOSS STATEMENT