Detailed Management Accounting Report: A Case Study of Airdri Company

This report provides a comprehensive overview of management accounting, focusing on its application within the context of the UK-based hand dryer manufacturer, Airdri. It begins by defining management accounting and highlighting its significance in decision-making, performance improvement, and financial control. The report then delves into various management accounting systems employed by Airdri, including cost accounting, inventory management, job costing, and price optimization systems. It further examines the importance of management accounting reports, such as budget reports, stock management reports, account receivable reports, and operating reports, illustrating how these reports aid in effective financial management. The analysis extends to evaluating the advantages of different management accounting systems and integrating these systems for enhanced business performance. Finally, the report explores appropriate cost analysis techniques, including marginal costing and absorption costing, to determine product costs and optimize profitability. The report covers the importance of management accounting in business development and offers practical insights into financial strategies and cost control.

Management
Accounting

INTRODUCTION
MA is practices of assembling useful content affiliated to business activity & recording
of that data in accounting report that help manager to make effective decision (Management
accounting, 2018). Management of organization gather, reminder, measure, control and examine
the collected information that aid them to make policies and strategies to succeed goal. It is a
system which is followed by the management to solve different financial issues that occurs in
corporation. To realize value of direction accounting Airdri is chosen, it is hand dryer
manufacture of UK.
In this project report detailed information about management accounting their system and
importance of report is shown. Project focus on different costing method, various planning tool
which are useful in maintaining budgets and important of management accounting approaches to
resolve different financial problem faces by companies.
TASK1
P1. Importance of various management accounting system.
Accounting is a method of recording, maintaining, auditing and analysing important
financial information to the management and advise them on taxation matter. It is useful in
revealing the profit and loss for an accounting year and provides the values and nature of
organisation owner equity, assets and liabilities. Accounting is further divided in two categories
that are financial accounting and management accounting.
MA is defines as the process of distinguishing, analysing, recording & presenting useful
financial data which is used by manager for making decision, improving performance, planning
for future and controlling operation with an organisation. This helps them to predict various
future events based on past experiences & develop effective policies (Amidu, Effah and Abor,
2011).
Financial accounting refers to the tracking of firm's money transaction using centralised
standard to measure the economic performance for an accounting year. It is summarising and
presenting of transaction in financial report, cash flow, income statements etc. In Airdri manager
used three important accounting system to evaluate and analyse information like cost,
performance and inventory. These are explained below:
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Cost accounting system: This system is help small and large company to examine and
improve its real profitability by estimating actual cost of its product. Cost accounting system
helps manager to measure the total cost that is incurred during the production of a particular
product. Airdri produces expensive hand dryer thus it require huge cost in the production so this
system is useful in this company. They use to record all the production related operation and help
them to get information cost includes in production process. Basically 3 type of costing system
(Carlsson-Wall, Kraus and Lind, 2015). For example in Airdri manager uses to measure the cost
of total hour utilised in manufacturing a product. Standard costing is the analyses of difference
between actual and budgeted cost like manager of Airdri prepare a budgets of cost that is going
to be involved in production process and then they compare it with actual cost involved. Normal
costing is used to derive cost of product. As an instance in Airdri manager uses normal costing
to derive the cost of hand dryer.
Inventory management system: This system is used by production organisation to
ascertain the actual information of stock lying with them. Stock lies within organisation in 3
basic form which is raw material, goods in progress & finished product. Company uses this
system to record the total stock list present in there production division. There are various
method of stock management system to maintain report of their stock such as perpetual &
periodic stock, FIFO, LIFO and JIT. Management of Airdri use FIFO techniques in which earlier
received stock will be used first for production of product (Dražić Lutilsky and Dragija, 2012).
Job costing system: This system is mainly associated with evaluating and analysing cost
of individual job that is involved in different operation performed within the company. For
example in Airdri manager uses this method to analyse direct & indirect cost which involved in
the production. So they can further cut down the cost if needed & improve efficiency of business
to increase the profitability of Airdri.
Price optimisation system: This is a mathematical analysis done by Airdri organisation
to determine response of different consumers when change in price of the product provided id
made. This method will help business organisation in determining the price that needs to be
charged by Airdri so that objective of profit maximisation can be achieved in long run. This is
derived from pricing strategy that is used to achieve various objectives such as increasing market
share, enhancing profits of the business and to compete effectively with the competitors in the
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market. Adopting price optimisation system in the company will help in serving prices which is
best suitable for business to compete in the market effectively.
P2. Importance of management accounting report and its type.
Accounting report are very important that shows the exact picture about the company
performance. It is the systematic recording of every financial transaction to the report by
manager. Later these report are presented to shareholders both internal and external to show the
financial position about the company. These report are maintained at end of every quarter so that
management have the holistic in context to the corporation finance. MA reports are crucial for
small business firm such as Airdri, as they derive essential plan of action to cut down cost &
maximise earnings. Airdri prepare various type of report to easiness decision making. Some of
the basic report are described below:
Budget Report: Budgets are the set standards on the basis of which planning of the
business organisation is designed to meet future uncertainties. This report is beneficial to prepare
and manage an effective budget. They calculate the cost in prior year and estimate budgets for
the following year and determine the places to reduce cost. In Airdri, manager prepare cost
budgeted report to control expenditure involved in production of product. They also estimate the
future expenses and form strategies with the help of this report.
Importance: This report aid to predict the financial health and give the picture about the
overall operation of company. Management calculate the expense and monitor the revenue
generated during an accounting with the help of budgets report (Granlund, 2011).
Stock management report: Report that keeps information regarding inward and outward
of the inventory and amount of inventory left in the stock is recode that helps in managing
inventory efficiently. This report has prepared to summarise detail information related to
inventory laying in a company. It aid to make the supply chain more efficient, data on inventory,
labour & different expenses participating in production process. Management of Airdri prepare
these report to compare different distribution channels within company to provide best manner of
supply their product.
Importance: This report have major importance in MA as manager keep a track record
of stock present within the company. Inventory management report aid them to record all
quantity of product in warehouses and maintain proper flow of the product.
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Account receivable report: These report are crucial for every organisation that provide
good and services on credit to their buyers. It helps to determine the exact outstanding amount
form debtor and prepare depending on the days of outstanding. Manager of Airdri prepare these
report to evaluate the total amount which is essential to be mention and helpful to keeps the
systematic record of those buyers who have not paid full amount.
Importance: This report is also important of manager as they determine total amount of
revenue to be generated in future and help to improve credit policy. With the help of account
receivable report management modify the collection process of Airdri.
Operating report: This report is tools that are used to reiterate the status of a project or
operation. Management distribute these report to experience employee for setting goal and
appraise performance of other worker working in any operation activity. In Airdri manager uses
these report to record the daily functioning of different operation related to production of Hand
dryer. This helps the, top manager to increase the profitability of operation and increase
efficiency of worker. Maintaining a daily operational performance report helps them to inform
other employee about the business condition so they make better decision.
Importance: Major importance of this report is to provide detail information about the
operation of business. So that management of organisation can make a effective decision in
respect if operation are not profitable (Johnson, 2013).
M1 Evaluation of advantages of various MA systems.
System Benefits
Cost accounting system  It is helpful for the managers as a result they can
consider profitable goods for the corporation.
 This is beneficial for the managers to determine faithful
prices for products.
Stock management system  Managers with the help of this system gain efficiency &
profitability of organisation if it maintain inventory.
 It increases level of transparent information of
inventory.
Job costing system  Managers ascertain the profitability of individual job
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performed within an organisation.
 Provide total information such as labour O/H that
includes in various jobs of organisation.
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D1 Integration of MA system
MA system and various report are very important for every organisation to grow as these
system and report help to record and measure performance of company. This provide detail
information to control cost, amount owned by debtors and financial position of company etc.
Budget report are useful in estimating total cost, account receivable reports can help the
managers to improve the credit policies and collection process. Inventory management report is
useful to track the stock available in warehouse and inventory in whole supply business.
Whereas, operational report are useful to keep record of daily business activity performed within
an organisation. These all report help them to increase the efficiency of company and improve
performance of business (JOSHI and et. al, 2011).
TASK2
P3. Appropriate techniques of cost analysis.
Cost is that amount which is paid to get something it is usually the movement of money
from buyer to seller. In business, it is the monetary value which is going to be sold by seller that
includes cost of direct material, overheads, labour etc. Manager of company have to be able to
determine the costs of product or services they offer for sale so that they can generate more
profit. Every organisation wants to earn huge profit so they fir appropriate price for their product
keeping actual cost in mind. Faithful cost of product will attract more number of customers.
There are many types of cost such as direct cost and indirect cost that should be managed by
manager of business to generate more revenue.
Managers in Airdri should fix such cost or selling prices for the hand dryer that may
attract more customers and aid to acquire more market share. Different techniques can be used to
determine net profit such as:
Marginal costing: This is the total cost involved in production on one additional unit of
output. The main purpose of analysing marginal cost is to ascertain the best point for an
organisation so it can achieve maximum profit. Marginal costing is a code whereby variable cost
are charged to cost units and the fixed cost aspects to the applicable period is carved off in full
against the input for that period. So in common bit is known as variable costing also in which
only variable cost are accumulated and cost accumulated and cost per units is determined
depending upon variable cost (Klychova, Faskhutdinova and Sadrieva, 2014).

Absorption costing: It is consider one of the best ways to determine cost of product and
net profit and known as full of total costing method. A method of costing that includes all fixed
& variable expenses are apportioned to cost centres where they are accounted for using
absorption rates. It consist of various elements such as indirect O/H, selling & distributation cost,
prime cost. When all the cost is considered in calculating price of the product then it will give
more accurate results by valuing the perfect price charged to conumers for the product offered.
Break even analysis: It is a useful tool that assist companies to determine a point where
a new product and services will be beneficial or profitable. In Airdri, manager use this tool to
ascertain the number of hand dryer they need to sell to at least cover their total costs. It is a point
company neither lose money nor make money but cover all their costs.
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Margin of safety: it is used in break-even analysis to indicate the total amount of sales
that are above the break even points. In general marginal of safety specifies the aggregate by
which company sales could decline the company will become non-profit.
M2 A range of management accounting techniques
MA techniques are useful in calculation net profit and increase theefficiency of
organisation. In Airdri, manager uses different costing method to calculated net profit for current
accounting year like marginal absorption costing. Management also follows two types of tool
marginal tool and historical tool.
Hitorical costing: The absorption or historical cost is used by the management in order
to record the actual price of assest at the time of their purchase so taht actual evalution can take
place in order to analyse the overall performance.
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Marginal costing: It is a kind of management accounting techniques which is used by
internal manager in ordert to calculate the cost that is implementred in order to procude an extra
unit of output.
D2 Interpret data
From the above calculation of marginal and absorption costing it has been analysed that
management of airdri tries to make best result from these methods. So that net profit generated
from marginal costing is $17500 and net margin of Profit Company earned by using absorption
costing techniques is $15675. So it is clear marginal costing is more benefited for Airdri to
calculate net profit. BEP of company is determined by selling 500 units and sales ate $6000. In
respect if organisation wants a desired profit of $10000 than total units they have to sell is
1333.33.
TASK3
P4 Advantages & disadvantages of planning tools used
Budget: It is an estimation of incomes and expenditures for a specific period of time. A
budget is prepared by the managers of a company with the help of previous year data and current
market trends. It is formulated to perform organisational activities and presented to the internal
stakeholders (Mistry, Sharma and Low, 2014).
Cash budget: An estimation of money inflows & outflows for a business over a specific
timeframe. This specific spending budget is utilized to assess, regardless of whether Oak Cash
and Carry Ltd has adequate money to work their business in not so distant future time. It is
classes into two section, for example,
Cash receipts: It is essentially said to be a measure of cash hold by an organization
available to be purchased of goods and services. Accountant of Oak Cash and Carry Ltd can add
money receipts to be adjust brought down to give organization additional sum of trade current
cast at present organization.
Cash payment: It is a type of journal record i.e. used to record transaction that is paid in
form of money. A cash payment comprises of paying a bank or commission charge or pull back
money. In the activity that any of payment made in real money is recorded into money book.
Advantage: It fits well with the prerequisite for consistence and costs control. Costs are
arranged through association and protest of consumption.
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Disadvantage: It can't neglect issues of government points, their association with
spending plan and administrations to be conveyed by government.
Master budget: It is known as the mixture of spending plans of lower level created by
organization's administrators occupied with planning process and incorporates planned financial
statements, financing plan and cash flows likewise. This financial plan is introduced might be
Fifty-fifty yearly or quarterly or might be yearly. A narrative clarification as note might be
appended with ace spending which clarifies arranging and key course of organization.
As master budget is fundamental arranging instrument utilized by administration group to
perform and coordinate the exercises of association and in addition utilized for execution
examination of financial department of the company (Moser, 2012).
Income statement: It is the money related record which represents organization's
financial performance over specified bookkeeping period. It additionally proves received
incomes and costs through both operating and non-operating activities. However, it represents
the end net profit or losses that are taken about by a management during the period of time.
Income statements are also commonly known as Profit and Loss statements.
Balance sheet: It is additionally one of most critical last financial statements of
organization which provides the entire position of organization. The accounting report
additionally discloses organization’s aggregate resources and liabilities that is mentioned under
the income statement of the company, or helps in determining the financial position of the
company. There are two parts of balance sheet one is assets part which proves the estimates of
total current assets and total non-current assets. Second part indicates data about liabilities and
additionally included into to investors value.
Benefits: This type of spending helps in getting ready for future occasions as this
financial plan consolidates all parts of future. It has spending plans of the considerable number of
offices because of administration can without much of a stretch recognize what office causing
issues in organization.
Limitation: Along with merits, there are couple of constraints are additionally present
which expresses that this kind of spending plan is hard to refresh and there is absence of
specificity (Ruiz-de-Arbulo-Lopez, Fortuny-Santos and Cuatrecasas-Arbós, 2013).
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