Management Accounting Report: Financial Analysis for Airdri, UK

This report offers a comprehensive analysis of management accounting principles and their application within Airdri, a UK-based hair-dryer manufacturing company. It delves into the meaning and requirements of management accounting, exploring various approaches to reporting and their advantages. The report examines cost calculation methods, including inventory management and job costing, and analyzes the critical aspects of management reporting systems. Furthermore, it assesses different planning methods used for budgeting and discusses the advantages and disadvantages of each. The report also highlights how organizations select management accounting systems to address financial challenges, culminating in a financial problem evaluation and conclusion.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
P1. Meaning of management accounting and requirements of various kinds of management...1
P2. Various approaches used for management accounting reporting ........................................3
M1 Advantages of Management Accounting as well application .............................................4
D1 Critical analysis of management reporting system ..............................................................5
TASK 2............................................................................................................................................5
P3 Cost Calculation for using appropriate tools of cost analysis ..............................................5
M2 Various approaches of management accounting..................................................................6
D2 Critical analysis of income statement....................................................................................7
TASK 3............................................................................................................................................7
P4 Advantages and disadvantages of various kind of planning methods used for budgetary....7
M3 Use of different planning technique's...................................................................................9
D3 Effective use of different technique's to decrease financial problems..................................9
TASK 4..........................................................................................................................................10
P5 Organisations are selecting management accounting systems to respond in financial
problems....................................................................................................................................10
M4 Financial problems evaluation............................................................................................11
CONCLUSION .............................................................................................................................11
REFERENCES..............................................................................................................................12
.......................................................................................................................................................13

INTRODUCTION
Management accounting is a process of preparing report as well as accounts that give
timely or accurate statistical or financial information. It is needed by the managers in order to
make short term and day-to day decisions. MA (Management Accounting) report often considers
organisation’s details such as cash, sales revenue generation, account receivable and payable, etc.
It is an activity of evaluating business operations and cost with regard to prepare internal records,
financial report and accounts to help the employer in judgement making process in attaining
firm’s goals and objectives. The main aim of this report to know actual position of company and
solve financial problem through management accounting system.
This report is based Airdri which is a UK based company and manufacture of hair-dryer.
This project evaluates various methods of costing which can support them to identify negative
and positive outputs. This scenario explains the way in which firm is using budgeting activity to
handle their operating expenses and cash flows with other financial statements. In this research,
various approaches of budgeting and their benefits and disadvantages are assessed as well.
TASK 1
P1. Meaning of management accounting and requirements of various kinds of management
MA refers to an activity of identifying, measuring, analysing, communicating and
interpreting financial information in order to attain goals and objectives of company. It is also
defined as an activity of preparing reports and accounts that offers accurate or timely financial
and statistical information in a systematic manner (Agbejule, 2011). It is required by the business
manager in order to establish short-term judgements. These are prepared with regard to meet
necessities as well as requirements of administration. As per American Accounting Association
(AAA), Managerial accounting are varying in applications of all resources. Each and every
method is fashioned in order to give important information which is needed by manager. So, it
will support in making better judgements regarding to them. There are different types of MA
systems they consider like cost and job accounting system, inventory management and price
optimisation, etc.
Therefore, with the use of all methods, Airdri can maximise their profitability ratio and
performance in upcoming year. One of the main aims of using this approach is to make accurate
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information and resources utilisation. This are used by company manger in year. It is more
impressive aspects because it analysis entire cost which is receive by firm in producing services
or products. Management accounting is significant technique in planning activity as it will give
accurate ways forms to invest in innovative venture (Bebbington and Thomson, 2013). Still,
administration always tries in order to acquire more benefit from its minimum root by using
correct methods.
In this activity, they see maximum capital in order to attaining targets and values that will
be managed as well as monitor with the utilization of various accounting method. MA support to
monitor costs & financial loss which obtain during Airdri production process. As an officer of
account, it is identify my role in order to use accurate approach. Mentioned company is a small
scale which is provide electronic items so they required and want a correct approach in regards to
record their regular basis transactions. Several systems of management accounting are:
Inventory management method: This approach is observing and controlling the use,
ordering and components storage etc. it is apply by the organisation in the goods production as
well as sell also. It is a pool of barcode scanners, mobile devices, desktop software and printer
with regard to streamline the IM such as goods, consumables, suppliers and stock, etc. It is also
defined as a monitoring practice of quantities of the last products for sale. One of the main aim
of this method is to correctly understand existence levels of inventory as well as under stock
situation and overstock. There are different function which are vary with this approach such as
receiving, generating buyers orders, adjusting, relocating of inventory. It is mainly linked with
business which deal in different units, in this best example is Airdri.
LIFO: As per this method inventory purchased last is sold first so inventory cost under
this method will be the cost of earliest purchase.
FIFO: In this method of stock valuation is a cost flow assumption that the first goods
purchased has sold first. As per this method, the earliest goods purchased are the first ones
removed from the inventory account.
Cost accounting approach: It is also identified as a process of recording, collecting,
evaluating and analysing various alternative courses of action (Burritt and et. al., 2011). Main
responsibility of the method is to give necessary and important information to mangers in a
systematic manner. This information is mainly based on the performance capabilities and cost
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efficiency. With regard to evaluate the product cost, there are some values which are used like
actual, normal and standard costing.
Job order costing: It is a system for assigning & accumulating manufacturing costs of an
individual unit of output. This system can be used by Airdri when there are different items have
produced which are significantly distinct from each other & each has a significant cost.
Process costing: As per this process there can be one method used for collecting &
assigning manufacturing costs to the units produced. This system can be used by Airdri when it
have to produce identical units in mass.
Price optimisation: It is identified as a numerical evaluation which is used by company
in order to calculate how buyers will respond to services or goods prices in comparison to
another. Main aim and purpose of organisation is to identify the cost to meet its objectives as
well as maximise operating revenues in current year.
Job costing: It is known as a process and activity through which determination of
distribution cost is done. It will receive on a specific job, in this person and business are
associated with each other (Cuganesan and et. al., 2012). This approach is primarily used where,
there goods produced are not same from another.
Batch costing system: It is same with job costing method in this product size which is
taken into intersectional. It is beneficial and useful system of each or every organisation because
with the use of this, manager of Airdri can easily identify different quality products. It will also
give necessary information due to goods such as manufacturing time, data and year etc.
Management accounting is an essential and impulsive tool that is mainly focused on
aggressive accounting policies of business. It includes planning preparation, strategies and other
needed measurement techniques.
P2. Various approaches used for management accounting reporting
In an enterprise, it is essential to have accurate system of accounting which can support
the business in order to evidence financial transaction. It will be beneficial and supportive for
future judgements which is taking better content from the present record introduction. MA is
most important aspects of every company that integrate entire department that are working with
common purpose. They are largely formed with external as well as internal environment which
are influencing the organisation (DRURY, 2013). It will concern with necessary message based
on social and cultural problems. In other word, all needed data and information regarding to
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Telecommunication company which can affect the decision making of the company. MA is
applied for planning, monitoring and judgement making whole message. It will depend on
statements due to financial which comprising the income, cash flow statement and balance sheet
etc. These may consider product, budget cost and performance report which are described under
this:
Cost report: MA evaluates manufacture product cost in a systematic manner. It is
complete through taking entire raw material, costs, overhead and labour pus in consideration.
Total of cost which is divided into produced goods amounts. In this whole data and information
are summarised in this report. It will permit capability of mangers in order to see product cost
value against the selling price. It is very beneficial and useful for the mangers because it help
them in planning and controlling all profit margins in an effective & efficiency manner.
Budget: It is one of the main and key aspects of MA is preparation of budget. These are
constituted through selecting estimated cost of preceding year as well as changing them to
upcoming forecasts. Airdri budget list that will show the all revenues and expanses sources. So
in this company attempt in order to achieve its goals and objectives in a specific time period
(Fullerton and et. al., 2014). Apart form, manager of the organisation which consider other
vendors in regards to utilise as raw materials providers to save wealth.
Sales report: This report provide an overview of the state of sales activity within a
corporation. It reflects the distinct trends happening in the sales volume over a specific duration
and it also consider various steps of sales funnel & the performance of sales executive.
Cost report: It is the process which is used by the organisation to know the cost
involvement in a project and this report has been prepared by the cost consultant and it is helpful
to control and manage unnecessary cost in the project. Airdri can use this report to ascertain the
cost of its various projects.
M1 Advantages of Management Accounting as well application
Management accounting systems Benefits
Cost accounting system  This system provide help to gather detailed
information associated to cost that involves in
construction process.
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 This specific system records the all construction
relation operations in context to the corporation.
Inventory management system  This system is beneficial to know the detailed
information about available stock at present and
how much required in future.
 As inventory has properly managed than
unnecessary warehousing cost can be eliminated.
Price optimization system  By applying this system management can set the
reasonable price of its products.
 Effective decisions can be taken in context to
formulate better strategies for the organisational
growth.
Job Costing system  It is helpful to ascertain different types of cost
which is associated to the completion of project.
 It is helpful in tracking the individual
performance in order to ascertain organisational
profitability and efficiency.
D1 Critical analysis of management reporting system
According to the Giovannoni, (2011) that says, financial transaction reporting into
account book with accurate correction are important. Company performance and growth are
completely based on reporting approach which is essential for the business in attain high
profitability. The another performance reporting is considered as essential reporting.
As per the other hand Granlund, (2011) all managerial accounting method which are
useful and valuable of the Airdri in order to manger their all information in a systematic manner.
Cost report is another main and essential aspects with the use of this organisation can identify all
necessary resources due to cost. This method is used by company manger in order to reduce
additional cost which are fulfil during the production process of extra unit. It will also take less
period as well as cost also in regards to handle all transaction in regular basis.
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TASK 2
P3 Cost Calculation for using appropriate tools of cost analysis
Costing: It is an accounting tool which support to give accurate information regarding
assembling as well recording. These are defined as a costs aspect which incurred in order to
achieve goals and objectives of the company. In other words, service or product cost is formed
with production of Airdri (Granlund, 2011). It will consider different values such as fixed,
variable and semi variable cost etc. There are several tolls and technique's which is used by
company in regards to identify their net profit which are described under this:
Difference between absorption and marginal costing
Absorption Costing Marginal costing
In this costing method both fixed and variable
costs of products are considered.
In this method only variable costs of products
has been considered.
Profit is calculated by using profit volume
ratio.
As fixed cost has ascertain in product cost as a
result profits get minimize.
It is an important aspect which is associated
with contribution per unit.
It is an important aspect in order to ascertain
net profit per unit.
Absorption costing has presented by outlining
the total contribution.
Marginal costing has presented in the most
conventional way for the purpose of financial
& tax reporting.
Income statements through marginal costing
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2 - 7800
Closing stock: 100*13 - 1300 -6500
Contribution 11000
Less:
Variable sales overhead 500*1 500
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Fixed overhead -1800
Selling and administrative cost expenses (800+400) -1200 -3500
Total Profit / Loss 7500
Income statements through Absorption costing
Particulars Amount
Sales 35*500 17500
Less:
Production cost 6+5+2+3 = 16*500
8000 8000
Gross profit 9500
Less:
Variable sales overhead 500*1 500
Selling and administrative cost expenses (800+400) 1200 -1700
Total Profit / Loss 7800
Interpretation: As per the above information with the use of Absorption and Marginal
costing approach. This approach is used by the Airdri in order to identify their net profit in a
systematic manner. With the use of marginal costing company can get profit by 7500. while
another is absorption method which is also used by cited business in order to find actual sales
such as 500 as well 7800. in this condition, second approach which is change because there all
budget is used.
M2 Various approaches of management accounting
All methods and tools are very important and beneficial of the company which is
described above. These approach are effectively and systematically used in regards to acquire
necessary information, the aim and objectives of management is mainly dependent on accounting
approach in the decision making formulation (Lee, 2011). There are several kind of accounting
tools which are valuable and accountable for the administration of standard & actual cost. They
have bored scope in dynamic nature which is very useful. It is linked with accounting such as
historical cost is thoughtful as acquiring impressive plan.
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D2 Critical analysis of income statement
As per the Agbejule, (2011) that says, income statement is essential part of the company
in order to understand financial condition in a systematic manner. It will be used to calculate net
profit with the use of absorption and marginal costing approach. So both methods are very
beneficial and useful for the company in order to achieve maximum profit. Marginal costing
aspects, with the help of this business is incur their contribution by 11000. from the same, net
profit of the company which created by 7500 along with this Airdri is using absorption method,
with the use of this company receive their profit by 7800. These are identified by the business in
regards to acquiring net earnings by 300.
TASK 3
P4 Advantages and disadvantages of various kind of planning methods used for budgetary
Budgets: It is defined as a calculation of whole expenditure and revenue. These are used
in a specific time period. Purpose of preparing estimated cost is to identify the future prices.
These are going in order to invested by business in an effective and efficiency manner.
Budgetary control: It is known as a budget system which is very useful for the company in order
to controlling and planning all resources (Li and et. al., 2012). The main purpose of Airdri is to
monitor and manage its operations in a regular basis by using appropriate plan of budget. It is
complete by using standard and actual unit in regards to devising positive comparison between
them. So it is linked with encompassing monitor approach that assist for management to formed
its operations.
Budgetary control process: There are several steps which are consider in this activity are define
under this:1. Budget estimation for future: It is known as prime phase, in this business require to plan
all activities with the use of correct thoughts from financial section. An accurate scheme
can make by the organisation in order to receive maximum revenue with the less
expanses. It includes various cost factors during process of production.2. Actual cost taken into consideration: In this process, manager of the Airdri that look
regarding the real cost invested by business in their production process. It will identify
the correct performance which are regulated and carried in recent year (Merchant, 2012).
Manger of the firm use this in order to identify 2 reactions, first is favourable and second
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is unfavourable. In this positive outputs are adverse and taken that required to be evaluate
advance evaluation.3. Examination between standard as well as actual cost: This is very important and
beneficial process of preparing actual values. It is identified the accurate value of
standard and actual costs. It is more productive and fruitfulness as the outcomes that are
more impressive.
4. Corrective process: In this phase, entire review and correction are seized into account.
Airdri manager is capable as well as liable for making evaluation process regarding
problems and departments requirements (Nixon and Burns, 2012). They required to
evaluate whether estimated cost is going in regards to complete finance division needs
and wants as well as company performance also.
There are several kind of budgets which are essential for each and every company. These are
described under this:
Zero based budgeting: This specific budget has start from a zero level & each activity
or expenditures are justified before entering in budget. The main feature of this budget is that it
starts from zero level. The management of Airdri can apply this method in context to budget
planning which is helpful to formulate effective strategies in order to enhance the profitability.
Advantages Disadvantage
 It is helpful to take effective decisions
because it does not focuses on past
data.
 This method is useful in context to
optimal utilisation of resources with the
help of resource allocation.
 It is complicated and time consuming
process.
 This type of budgeting can increase the
paper work reason being each activity
have to be justified.
Static Budget: It is defined as a calculation of relate data which is used at single activity level
(Static budget, 2016). It is primarily prepared and designed at the budgeted opening section . It is
beneficial and suitable only the process of planning.
Advantages Disadvantage
 It is prepared as per condition and  It has minimum application resources. I
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terms. So in this whole necessary
message are based on supposable that
never be modified.
 It is an ineffective technique's and
methods for monitoring all costs.
Cash-flows Budget: It is one of the main and beneficial method which is apply by all
organisation in a systematic manner. With the use of this, company can identify their total
outflow and inflow in recent year (Parker, 2012). It is considered several activities that are liable
for creating cash such as operating, financing and investing.
Advantages Disadvantage
 Total cash outflow and inflow
estimation are analysis with the use of
this budgets.
 It will disregard cash-flows later the
payback period completion.
 In the activity of profit calculation, it is
never conceivable.
M3 Use of different planning technique's
There are different planning tools and techniques which can be used in the organisation in
order to take effective financial decisions for the growth of corporation. In Airdri all these
planning tools such as: budgetary control, zero base budgeting, static budget and cash flow
budget are used to make forecasting for future in budgets. Organisation can use different
budgeting tools in order to make comparison about their performance. It also provide a guideline
to perform the work which is helpful to set financial goals & objectives. For the company it is
important to make appropriate forecasting related to financial targets & these budgeting tools
such as budget can help them in analysing proper estimation of future financial goal.
D3 Effective use of different technique's to decrease financial problems
Telecommunication company is formed with electronic product production. Different
methods are defined as a best way to identify the negative and positive outcomes of goods that
required an accurate method to handle them. As the company profitability which is influenced
due to problems that are boost in an enterprise. It is very important for business administrator in
order to use essential technique's such as benchmarking, financial indicators and key
performance indicators in business operation. These are beneficial and useful in regards to
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