Management Accounting Report: Airdri's Financial Analysis

This report provides a detailed analysis of Airdri's management accounting practices, covering various aspects such as cost accounting, inventory management, and budgetary control. The report begins with an introduction to management accounting and its requirements within an organiz...Read More

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................4
P1.Management accounting and its requirements in an organisation:........................................4
P2: Explain different methods used for management accounting reporting...............................5
TASK 2............................................................................................................................................7
P3.Income statements by absorption costing and marginal costing:...........................................7
TASK 3............................................................................................................................................8
P4.Benefits and weaknesses of different types of panning tools used in budgetary control:.....8
TASK 4..........................................................................................................................................10
P5.Comparison of companies in resolving the financial issues:...............................................10
CONCLUSION..............................................................................................................................11
REFERENCES .............................................................................................................................14

INTRODUCTION
Management accounting that also known as managerial accounting which is a chain of
activities for analysing cost of a business and operations for building financial reports, records
that helps in taking important decisions in achieving financial goals and objectives. It is very
much important for organisation to translate data and statistics into meaningful information from
it. This report is based Airdri which is a hand drying industry founded in Oxfordshire in year
1974 to give best experience to their consumer base by giving best products and services. This
report is based on management accounting and essential requirement of various kinds of
management accounting systems. With various kinds of methods of management accounting
reporting to get reliable outcomes in an organisation. Further it includes varied costs with help of
techniques for preparing income statement with advantages and disadvantages of various kinds
of planning tools for budgetary control. At last comparison in between organisations for adapting
management accounting systems to respond with financial problems or concerns.
TASK 1
P1.Management accounting and its requirements in an organisation:
In management accounting involves building and providing timely financial with statical
data and information to managers of business for taking day to day decisions for accomplishing
organisational goals and objectives (Banerjee, 2012). Information and data which founded in
management accounting is vast in nature and helps to managers in formulating business policies
and plans in taking effective decisions.
There are various types of management accounting systems that are as follows:
Inventory management system:
Cost accounting system:

Cost accounting system or costing is an accounting framework that applied in an
organisation to predict or approximate cost of their products for motive of valuation of inventory,
analysis of profitability and controlling cost (Cadez and Guilding, 2012.). In cost accounting
system allocation of the cost should be performed on basis of activity based costing system or by
using traditional costing system. Estimation of actual cost is very much potential for organisation
for effective functioning of various activities. It is an kind of accounting system with motive of
capture and evaluate organisational production cost by weighing inputs cost and includes fixed
cost for taking crucial decisions. In context of Airdri they use cost accounting framework for
evaluation of cost of products and services by evaluating each and every factor associated with it.
Inventory management system:
Inventory management consist of methods or tools to control and evaluate the overseeing
of ordering, usage and storage of various components that are applied in organisation to produce
goods and services that they want to sell (DRURY, 2013. ). It helps in combining various
applications of barcode scanner, desktop software's and mobile devices by streamlining the
management of inventory that are consumables, goods and services and supplier products and
services. It is a important practice for controlling and overseeing quantities of finished products
and services in proper way. In context of Airdri by using inventory management they evaluate
and measure factors that affect inventory in proper by so that effective results should be
accomplished.
Job costing system:
Job costing is an system refers to allocating the cost of manufacturing for an individual
product or batch of a products to get right kind of inputs (Fullerton, Kennedy and Widener,
2014.). For job costing system information should be needed to submit data to ultimate
consumers as per the contract in which costs should be refunded. That kind of information is
very much essential for determining accuracy of system that should be capable for quoting
pricing that reasonable for pricing. In context of Airdri they by using job costing system by
collecting and allocating manufacturing and their resourcing.
Price optimisation system:
Price optimisation system refers to the mathematical application to determine reaction of
consumers to their various price levels regarding their goods and services. It basically applied for
determining of pricing that helps to organisation for fulfilling their goals and objectives to

maximise profit in proper way. In context of Airdri by using they fix optimum pricing that
proved beneficial to reach at large no. of consumer base.
Difference in management and financial accounting:
Management accounting majorly provides information to the people in their organisation
on other hand financial accounting gives information to outsiders such as shareholders to occupy
best results. On other hand financial accounting required by the law and regulations on other
hand management accounting does not required any kind of laws.
P2: Explain different methods used for management accounting reporting.
For an organisation management accounting reporting is very much crucial to gain
desirable outcomes that are as follows:
Budget reports:
Budget managerial accounting reporting is very critical to measure performance of an
organisation and created for organisation as a whole, department wise and for the large
organisation (Herbert and Seal, 2012). Each and every organisation builds or create their own
budget which is a grand plan of a business. A budget should be based on their previous
experiences and from unforeseen circumstances that arise. In context of Airdri they list out all
their major income and expenditures that helps in get accurate results to accumulate right kind of
knowledge and information. Airdri always tries to achieve their goals and objectives as per their
budgeted amount.
Account receivable aging reports:
If an organisation majorly rely on the extending credits then account receivable aging
reports is very much crucial for them (Hilton and Platt, 2013..). Breaking down the balance of
an organisation as per specific time period helps to managers to find out their defaulters by
finding out their issues or problems by collection process of an organisation. After that company
find out kinds of defaulters then organisation tighter their policies to get their money back that is
very much critical for their business. In context of Airdri they use account aging reports to find
out their bad debts and money they have to get from their defaulters.
Cost managerial accounting reports:
Managerial accounting helps in compute the cost of various articles that are come into
manufacturing. In that all raw material cost, overhead cost and labour with another kinds of cost

comes under it. In cost report all kinds of summary of information consisted and gives the
capacity to managers in realisation of costs of various products in against selling prices. In
context of Airdri which estimates profit margins with help of these reports as they provide clear
picture in front of the manager for predicting accurate cost (Strauss, Kristandl and Quinn, 2015).
Performance reports:
Performance reports are very much crucial for an organisation to review the performance
of an organisation as well as performance of each and every employees as per the set standards.
In context of Airdri where departmental performance reports should be generated to measure the
performance of the whole organisation. Managers avails performance reports for taking
important strategic decisions regarding future of an organisation. In that individuals are rewarded
for their performance and commitments and underperformed should be remarked as separately.
These kinds of reports have deep insights regarding working of an organisation in giving their
best for organisational growth and enhancement (Kaplan and Atkinson, 2015). So it is one of
most important report to measure and evaluate performance of each and every individual to get
right kind of results while reviewing performance of an individual to get right outputs.
Inventory management report:
For an organisation inventory management report works to evaluate overall health of an
organisation it helps in gaining important insights about profitability regarding products and
services to evaluate performance at optimum level (Kotas, 2014.). With help of these reports
organisation can by using item fill rate and for getting inventory accuracy to get right kinds of
outputs. It also helps in reducing inventory turnover by calculating it in proper way. In context of
Airdri they uses inventory management report to control each and every attribute related with
inventory so that they can get desirable outcomes.
TASK 2
P3.Income statements by absorption costing and marginal costing:
Income statement may be prepared with the help of two techniques of the management
accounting system, the meaning and practical solution for preparation of income statement is
discussed in detail which are as follows:
Absorption costing:

This is a technique of cost accounting through which an manufacturing enterprise may
prepare its income statement. In this technique, the fixed cost related to its manufacturing
activity shall be taken in its income statement by applying an absorption recovery rate.
Marginal costing:
This is another technique of cost accounting for preparation of income statement which
consider only relevant cost and ignores fixed cost. In this, variable cost is charged to the units of
cost and fixed cost are completely written off against the contribution (Spraakman and et. al.,
2015).
Preparation of Income statement through absorption costing:
Particulars Rate per unit Quarter 1 Quarter 2
Revenue 1 66000 74000
Less:
Opening stock
Variable production cost
Fixed production cost
Add:
Closing Stock
0.21
0.65
0.21, 0.24
-
42900
16000
2520
2520
48100
16000
960
Gross Profit 9620 8340
Less:
Selling and administration cost (Fixed) 5200 5200
Net profit 4420 3140
Working notes:
1. Calculation of cost of closing stock:
For quarter 1: 16000/78000 = 0.21
For quarter 2: 16000/66000 = 0.24
Preparation of Income statement through marginal costing:
Particulars Rate per unit Quarter 1 Quarter 2
Revenue 1 66000 74000

Less:
Variable production cost 0.65 42900 48100
Gross Profit 23100 25900
Less:
Fixed production cost
Selling and administration cost (Fixed)
16000
5200
16000
5200
Net profit 1900 4700
Interpretation:
After observing the above solution related to income statements, it is evident that profits
under absorption costing is higher in quarter 1 and lower in quarter 2 as compared to marginal
costing approach, this is because marginal costing approach provides correct profitability of an
enterprises. Therefore, enterprise shall follow the marginal costing approach in preparing its
income statement.
TASK 3
P4.Benefits and weaknesses of different types of panning tools used in budgetary control:
Budget may be defined as a financial plan which is prepared by the manufacturing
enterprise like Nero Ltd. for its future business operations to provide guidance to management
staff and working staff. Budgetary control may be defined as process for setting goals by the
mangers within various budget. In other words, it is an control activity in which actual results are
compared with budgets (Christ and Burritt, 2017).
The various planning tools which are used in budgetary control are as follows:
Operational budget:
This budget assist the companies like Nero Ltd. in performing its day to day operations in
effective and efficient manner.
 Benefits: This type of budget helps the company in analysing and evaluating the
different processes such as worker performances related to a specific task and so on.

 Weaknesses: It needs more time and cost in preparation process that makes this budget a
little ineffective and inefficient.
Master budget:
Management accountant of an organisation like Nero Ltd. has responsibility to prepare
this budget which provides the details about the performances of a specific division (department)
of the company.
 Benefits: By creating budget related to the performance of a specific budget, it helps the
company in planning the future operations related to such division for improving its
effectiveness and efficiency for increase the
 Weaknesses: The important disadvantage of using master budget is non cooperation for
the working staff which may lead to ineffective preparation of this budget that are not
provided any support in growth of an organisation like Nero Ltd (Collis and Hussey,
2017).
Zero-based budget:
It starts in all the department with zero level for their financial requirements. In this
budget, company does not consider previous budget's figures.
 Benefits: Preparation of this budget has justified spending, identify redundancies and
focuses on use of resources.
 Weaknesses: It includes lot of money and time to prepare this budget and there is loss of
long-term planning (Edwards, 2013).
SWOT analysis:
This is a techniques which is used by the companies like Nero Ltd. the for assessing its
internal and external environment at micro level that support the company in its growth and its
long term survival in such industry. Swot analysis includes the following stages:
 Strengths; By using this analysis, company can identify its strengths which are existed in
the internal environment of an business organisation that may help such company in
developing its competitive advantages (Pavlatos, 2015).
 Weaknesses: SWOT analysis assists an organisation in identifying its weaknesses which
should be necessary for the company for long term survival without any interruption.

 Opportunities: Opportunities are existed in external environment of an company which
provides various benefits to such company such as increase in the sales and profitability
for permanent state and other related aspects.
 Threats: These are existed in external environment that provides interruption in the
function of business operations which should be identifies through applying SWOT
analysis for smooth functioning of business operations in effective and efficient manner
without any delay (Fadzil and Rababah, 2012).
TASK 4
P5.Comparison of companies in resolving the financial issues:
Businesses face challenges in the form of the ways as to how can they adapt to newer
business models, devise new strategies and ascertain modern procedures to reasonably deal with
macro factors while creating value to its shareholders as well as achieving financial success.
Only some established organisation can satisfy the needs of over growing challenges at the wake
of the hour. The major issue is the organisations are failing to address the key benefits which
comes from management accounting imparting wisdom to take robust decisions. Management
accounting provides a broader scope to the whole decision-making mechanism by adding
technical rational to it , helping the managers to be cautious in the future and eliminate the
existing risks in phased manner (Nørreklit, 2017).
Organisational responses to financial problems through management accounting:
The primary objective of a centralised management structure is to identify the key
financial issues which are controlling the flow of decision-maker. These issues disturb the
harmony of an organisation in a way that they devoid systematic flow of processes. However in
order to identify these key financial issues management uses various devices like budgetary
targets control, analysis through key performance indicators, benchmarking techniques,
variances in the budgeted statements by determining the evidential skewness in the budgets etc.
(Farouk, Cherian and Jacob, 2012).
The other issue that arises at the door step of any organisation is the application of ethical
practices. Majority of organisations lack in their pursuit for a good financial governance code.
They lack to seek successful the right use of right thing at the right place at right time. This
disruption in the mechanised flow of financial information creates more disruption in an

organisation. To come out of this chaotic situation an organisation needs to come out of the
shackles of traditional governance models and to develop robust financial information flow
channels with profound systems to support the flow (Gond, J. P., and et. al., 2012).
Thirdly, an organisation must address the need for management accounting and a good
management accounting system. They must address that applying correct management
accounting principles will only develop the capacity building structure. The organisation needs
to use full disclosure principles through meeting financial reporting standards. The critical steps
to a successful and sustainable business are :
 Constantly evaluate the global trends which are impacting the business scenario around
the globe.
 Address key determinants in the industry which are determining the shift in the
management style, processing, operations, laws etc.
 Build a linkage between various functional areas with the sustainable goals of the
organisation, develop new models which suits the corporate identity of the business,
always keep on building new outlook.
 Keep on developing KPI which may play a key role in the development in the decision-
making paving a way for incremental judgement mechanism.
 By emancipating key tools and principles of management accounting like carbon foot
printing, lifestyle costing, natural resource premises sustainability, and other factors into
a decision-making model.
 Ensure that all matters of financial and non financial nature are met through the
sustainability model of the business. Construct a solid reporting system along with a more
rock solid management accounting system to build an over growing contributory
organisation to the society at large (Huang, Teoh and Zhang, 2013).
CONCLUSION
From the above report it has been concluded that management accounting is very much
important for an organisation to deal in effective manner with financial concerns. In an
organisation various kinds of management accounting systems and tools should be used that are
cost accounting system, job costing system and many more. To coordinate and evaluate various
aspects organisation have to use accounting reporting that are budget reports, performance
reports and many more that are helps in evaluate hidden factors related with finance. These tools

and techniques proved beneficial for eradicating various kinds of financial problems and
concerns that are lack in resources and funds that hinders self interest of an organisation to get
their desirable outcomes.

REFERENCES
Books and journals:
Banerjee, B., 2012. Financial policy and management accounting. PHI Learning Pvt. Ltd..
Cadez, S. and Guilding, C., 2012. Strategy, strategic management accounting and performance: a
configurational analysis. Industrial Management & Data Systems. 112(3). pp.484-501.
DRURY, C.M., 2013. Management and cost accounting. Springer.
Fullerton, R.R., Kennedy, F.A. and Widener, S.K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting practices.
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Herbert, I.P. and Seal, W.B., 2012. Shared services as a new organisational form: Some
implications for management accounting. The British Accounting Review. 44(2). pp.83-
97.
Hilton, R.W. and Platt, D.E., 2013. Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Christ, K. L. and Burritt, R. L., 2017. Water management accounting: A framework for corporate
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Collis, J. and Hussey, R., 2017. Cost and management accounting. Macmillan International
Higher Education.
Edwards, J. R., 2013. A History of Financial Accounting (RLE Accounting). Routledge.
Fadzil, F. H. B. and Rababah, A., 2012. Management accounting change: ABC adoption and
implementation. Journal of Accounting and Auditing, 2012. p.1.
Farouk, S., Cherian, J. and Jacob, J., 2012. Green accounting and management for sustainable
manufacturing in developing countries.
Gond, J. P., and et. al., 2012. Configuring management control systems: Theorizing the
integration of strategy and sustainability. Management Accounting Research. 23(3).
pp.205-223.
Huang, X., Teoh, S. H. and Zhang, Y., 2013. Tone management. The Accounting Review. 89(3).
pp.1083-1113.
Nørreklit, H. ed., 2017. A philosophy of management accounting: A pragmatic constructivist
approach. Taylor & Francis.
Pavlatos, O., 2015. An empirical investigation of strategic management accounting in
hotels. International Journal of Contemporary Hospitality Management. 27(5). pp.756-
767.
Spraakman, G., and et. al., 2015. Employers’ perceptions of information technology competency
requirements for management accounting graduates. Accounting Education. 24(5).
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Strauss, E., Kristandl, G. and Quinn, M., 2015. The effects of cloud technology on management
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