Management Accounting Report: Airdri, Nero Ltd, and Profit Analysis

This report delves into the significance of management accounting in enhancing a company's performance, focusing on the decision-making process within the context of Airdri, a hand dryer manufacturing firm. It explores various management accounting systems, critically evaluating their benefits and applications, including job costing and budgetary reports. The report includes a practical application through the preparation of Profit and Loss statements using both absorption and variable costing methods, justifying the differences in profits and preparing a reconciled statement. Furthermore, the report contrasts three planning tools utilized in management accounting and compares ways to increase effectiveness. The report also analyzes the planning tools used in management accounting and the ways in which management accounting is applied to increase effectiveness, providing a comprehensive overview of financial reporting and analysis.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
SECTION 1......................................................................................................................................1
1. Explaining importance of management accounting in decision making process for
improving performance of company......................................................................................1
2. Explaining different types of management accounting systems used for management
accounting reporting...............................................................................................................3
3.Critically evaluate the benefits of these types of management accounting systems, and their
applications within the organisational context.......................................................................4
4. ............................................................................................................................................5
a) Preparing Profit and Loss statements using absorption and variable costing....................5
b. Justification of difference in profits from both the methods..............................................6
c. Preparing reconciled statement of Profit and Loss ............................................................7
LO 4.................................................................................................................................................7
PART B............................................................................................................................................7
Comparison and contrasting the three planning tools that used in management accounting. 7
Compare ways in which management accounting applied in respect to increase effectiveness
..............................................................................................................................................10
Conclusion.....................................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Every business is in need to do their job with most efficiency which will be helping them
to analysis what are the problems which are prevailing within company. Management of business
is that part which is assisting whole organisation into their efficient allocation of funds and
thereafter its use and reducing wastage. In this part the process of management accounting is
used which means preparation of books of accounts of firm analysing profits and loss, preparing
budgets and its allocation and at the end identifying area which is not profitable for firm. Under
the current report we would be understanding meaning and important of management accounting
in decision making procedures in the context of Airdri which is a hand dryer manufacturing firm.
In further therms it would be taking Nero Ltd and explaining the planning tools which are sued
in management accounting.
SECTION 1
1. Explaining importance of management accounting in decision making process for improving
performance of company.
Management accounting is majorly helping the internal environment of firm like that of
its employees, owner and management who are directly associated with firm. This is assisting
them all in knowing what is the financial position in market, what are returns that each part of
investment is giving to firm and how could they be making future predication as according to
present situations of firm (Abernethy and Wallis, 2018). All the quantitative information like that
of cost, revenue, bills, profits and budgets are been used in management accounting so that they
could be planning and organising what all resource which company is having. Airdri company
that is manufacturing electric hand dryer is the first of its kind in whole world so it is important
for them that they are been employing best of the management accounting principles in making
decision as from where they would be obtaining their funds.
Management accounting is very much important in order to have a look into fact that
there are numerous tasks which company need to follow as per the budget and actual expense
which company is having. In whole firm this system is playing important role like in top, middle
and lower level of mangers are employing it so that they could earn higher amount of profits
with the resources which they would be applying. Whole business and its activities are been
governed by this management accounting system which help in controlling business
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organisation. There are number of benefits which manufacturing firm is getting at time when
they are using management accounting within their organisation.
Product Costing- manufacturing firms are very much and on daily bases involved into
part of making or assembling of products of company. So there is requirement that managers of
production department are analysing the cost which would be involved into making that
particular product (Morgan and Kamaya, 2018). On the same hand this product cost will also be
helping in determining the selling price and thus ultimately into profits of the firm. In order to
value the inventory of firm they could better know how much it would be costing them or in how
much competitor firms are purchasing them.
Variable costing- as per GAAP which is also known as Generally Accepted Accounting
Principles it is said that all cost of producing all products should be mentioned and determined so
that firm is having knowledge about how much to be spend on each of the product. In terms of
management accounting it would be easy for them to analysis what is the variable cost of
producing each product and that too at each level of production. Both job order costing and
process costing would not be easy for manager who are preparing budgets as they would be
allowing in assessing the cost of each batch of products which is been manufactured.
Activity based costing: Once the association has made sense of what things to offer, the business
needs to choose to whom they should offer the things. By using development based costing
strategies, free wander organization can choose the activities required to make and advantage an
item advertising. Embedded in this information is the cost of customers. Picking which
customers are basically beneficial empowers the business visionary to focus publicizing toward
the buyers who are the most profitable
Variance analysis- at the time when production department is allocating cost of each
good which is been produced by firm then this could be helping in knowing the cost of
production. Then this could be higher in two reason which could be using more of input then
expected. It is also possible that their inputs are costing more than expected or what they have
planned. This analysis will also be helping the firm in framing difference as in the cost of
production both in price and quantitative terms.
Utilization of data- Management Accounting information gives a data driven look at how
to grow a free organization. Arranging, money related declaration projections and balanced
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scorecards are just two or three instances of how regulatory accounting information is used to
offer information to empower organization to control the destiny of an association. By focusing
on this data, boss can settle on decisions that go for constant change and are true blue in
perspective of savvy examination of the association data, rather than feelings.
2. Explaining different types of management accounting systems used for management
accounting reporting.
In the stating of the financial year it becomes very much important that company is
engaging its management staff into formation of budgets. Then towards the end of year they
would be matching the actual results with the expected or budgeted one. So as budgets are
important it is also necessary that they are making reports like that of budgeting, cost reports and
that related to creditors and debtors of firm (Commerford, Hatfield and Houston, 2018).
Reporting would be termed to as telling the management about the whole year how much it
costed to firm and what all changes must be implemented so that next year they are been able to
control the cost. This reporting would be necessary for top level of management of company so
that they easily analysis that how much they have budgeted and what is the actual returns.
There are various methods and ways which could be applied in organisation so that they
could be easily reporting all kind of information to their senior level management. Then they
would be analysing that fact that whether company is into profits or loss and then making certain
changes. The information which are provided to management involves cash flow statements,
balance sheet and profit or loss account with the help of which company will be analysing its
market position.
Job costing-
It is very important that cost of firm is been determined by firm which include value of
products at the time when they are been produced and not the time when it is been sold. In a
manufacturing firm like that of Airdri there are number of job or departments which are
operating within company like that of production, packaging, financing, accounting and selling
or advertising departments (Types of Managerial Accounting Reports, 2018). All these are
having their own expenses and revenues and this need to be given costing as per job which is
performed by them. So according to work which they are doing they are getting their cost
allotment which is known as job costing technique. All the cost which is associated with each of
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these departments will be telling company about which part is generating higher profits and
which is making loss which is affecting the whole company and its profits as well.
Budgetary reports-This is that type which is prepared at the starting of each year thus telling
company that what is the amount of last years profits which they are putting into firm and how
much would be costing or allocated to each department. Budgets are most important part of any
firm which is telling that how much amount would company be investing into each department
of firm.
Accounts receivable ageing report-
There are number of debtors of firm like that of clients or customers who are not giving
money on time even after getting their order either they do not give the payment or either they
delay them (Griffiths, Brockelsby and Walshaw, 2018). So it becomes very much important that
all debtors of firm are been noted down, form how many days they are not given the money and
till what time they would be giving this pending amount.
3.Critically evaluate the benefits of these types of management accounting systems, and their
applications within the organisational context.
There are various methods of management accounting system which helps an
organisation to maintain or manage the accounts, profits, expenses and loss of the business
effectively. Therefore, each of the method used in the management accounting has its own
benefits and importance in context to an organisation or business. It is very essential for keeping
the records of a business in order to calculate profitability of the same. Management accounting
systems help an organisation to effectively manage the financial resources of the company and to
prepare effective strategies according to the outcomes of the business. As per Renz and Herman,
(2016) all these kinds of bookkeeping report which are there are having their own advantages
and restrictions in regard to firm in which they are been readied. Like the account receivable
report would let organization to think about what is that sum which is as yet pending to all
indebted individuals of firm and that too for what amount long. With the assistance of this data
that is said organization could undoubtedly come to realize that to whom in future organization
must not give item using a credit card.
Fullerton, Kennedy and Widener,(2014) Additionally said that activity costing method would
take so much time and endeavours of bookkeeper who might be occupied with getting ready
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report. It ends up troublesome for them to decide what amount correct sum ought to be put
resources into every office or item. As there are numerous others more vital work of accountant
on which more fixation would be required other than apportioning of cost to every office or
work. Then again Schaltegger and Burritt,(2017)incorporated that planning spending plan for all
branches of business and as entire is the best arrangement under which all cost, name and
measure of indebted individuals could be said. Spending reports which is made will tell how
much sum should b contributed on every single office so evaluated benefits are accomplished.
4.
a) Preparing Profit and Loss statements using absorption and variable costing.
 Absorption costing – It is kind of costing method which will include both direct and
indirect expense of an organisation in the accounts in order to calculate the cost of a
particular time period.
Quarter 1
Quarter 2
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 Variable costing – Whereas the variable costing method is used in order to deduct the
production or manufacturing overhead that would be considering only the variable cost of
the organisation such as the material, direct labour and other production costs.
b. Justification of difference in profits from both the methods
As we have computed benefits concerning both the strategies that is connected assimilation and
variable strategy of taking out income. In previous one as both the immediate and aberrant
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overhead use would be utilized and in last one just direct cost would be utilized. So as a result of
this principal benefits of same organization and that too for same period would not come same .
In retention one the aberrant use like that of offering and appropriation cost would not be
utilized.
c. Preparing reconciled statement of Profit and Loss
Statement under the variable cost :
Statement under absorption costing technique :
LO 4
PART B
Comparison and contrasting the three planning tools that used in management accounting
To get the powerful augmentation the generation and productivity of the association
which required to set up proper business administration. Consequently, in regard of basic
investigation of the organization past execution of business, the experts or the head will wind up
ready to settle on appropriate choice and planing for future operational activity. The three
planing instrument utilized as a part of administration bookkeeping which will help to the expert
of Nero Ltd execute, for example, takes after:
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Budgetary-control: This system consider controlling on the couple of sorts of cost to set up the
spending program. Additionally, it in like manner steady perspective that fused into the assorted
division. In this idea, genuine execution could be measure in spending design of the Nero Ltd.
Efficiency in like manner expecting basic part to make triumphs. Thusly, targets and objectives
will complete through control and screen on the displays. For example, in the picked business
this framework used to differentiate standard and genuine displays.
Budget: This is another instrument which help to make proficient results at workplace with
estimation of the cost. It is furthermore basic parameter in the errand that used by manager of the
business. Inflow and overflowing of the business will be considered to work a couple of
activities. Spending help to growing efficiency and execution in consider way.
Sales Budget: Sales spending sets and set up the declaration that check cost and convey precise
results at workplace. It moreover expects basic part to extend arrangements and wage of the
association. It serves to chairman of Nero Ltd. to find intense money related conditions at
workplace.
Cash Budget: Cash spending design is the similarly important process which help to recognize
costs that are occurs in masterminding. With the help of effective organization practices
efficiency will make in Nero Ltd. Perfect resources are furthermore valuable suspected that
growing cash related outcomes at workplace of the business. Cash spending serves to adequate
decisions, allotting cost, administrator.
Zero base budgeting: Further, organization of the picked business need to prepare spending
programs in light of zero base arranging. With this regard, arranging moreover make in view of
zero. As results, real figure increase organization practices for the future orchestrating and take
out extra cost too. Orchestrating moreover make authentic judgement of the endeavour in
systematic way.
Fixed budgeting: In the exact cash related course of action, changes are chooses as the genuine
and standard introduce. In this manner, strategies also associated in view of genuine execution
too. It in like manner obliging idea to centre around the customers of picked business. It takes a
gander at the business execution with different resources and methods too.
Calculation of sales Budget
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Interpretation: To convey the business spending investigation, it can be translate that business
spending plan make effect to create results and results in deliberate way. With this respect,
income is likewise computed that assistance to gain more benefits through decides a few
capacities and tasks. In the present thought, it can be expressed that income of the
association likewise expanding which affect decidedly towards the Nero.
Production Budget:Generation spending design is similarly useful that make by more units that
are made in the association. It makes creative results, creator perform more limits and
assignments to growing inventive results at workplace. Age spending design similarly
ponders deliberate activities in the business condition. The picked business can use it to
make imaginative things and organizations in the business.
Calculation of Production Budget:
Interpretation: Production Budget is vary from the deals. Accordingly, it reflects to deliver
items and administrations in efficient way. In this thought, comes about are performed and
build up that effect on the endeavour exercises. Consequently, it likewise discovers that
business expanding to focus on the new exercises.
Capital Budgeting:It is the effective system in which process well thoroughly considered
discovering figuring the expenses. Wander also design to think about high indicate make
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efficient results. These sorts of costs help to discover creative results. In the specific time of
period, creation structure will realize new plant, equipment, etc.
Payback Period: These techniques will help to know the length of the time required to recover
the cost of an investment. The payback period of a given investment or project play a
significant determinant of whether to undertake the position or investment as for long period
or payback period are normally not required for project position. As it will ignore the time
value of money.
= 3+40000/100000
= 3+.04
= 3.4 years
Interpretation: it is not the effective situation for the organisations where it involves the various
information that are form and cover in three years and four months of time period.
Compare ways in which management accounting applied in respect to increase effectiveness
In the chosen enterprise Nero Ltd. there effectiveness increasing that assists to reduce
wastage and negative impact as well. With this regard, controlling activities helps to chosen
enterprise to increase their revenue and profitability as well. Following are different management
accounting systems can be applied at workplace:
 Cost accounting system: Cost accounting system is the important perspective that assists
to make more effective results at workplace. With the help of this method, systematic
activities will be performed and manufacturing products in proper way. There are several
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