Management Accounting Report: Techniques and Financial Solutions

This report provides a comprehensive overview of management accounting, focusing on its application within a company manufacturing hand dryers (Airdi). It begins by defining management accounting and detailing its various types, including job costing, price optimization, inventory management, and cost accounting systems. The report then explores different management accounting reporting methods like budget reports, inventory reports, and job costing reports. It also discusses the benefits of these systems, such as improved customer behavior analysis, cost reduction, and inventory management. The report further delves into cost calculations for preparing income statements, differentiating between fixed and variable costs, and explaining marginal and absorption costing. Additionally, the report examines planning tools for budgetary control, comparing their advantages and disadvantages, and analyzing how organizations adapt management accounting systems to resolve financial problems. The conclusion summarizes the key findings and emphasizes the importance of management accounting in making informed business decisions.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and its different types....................................................................1
M1 Benefits of management accounting system........................................................................4
D1 Critical evaluation on management accounting report integrated within organisational
process.........................................................................................................................................4
TASK 2.......................................................................................................................................5
P3 Cost calculations to prepare an income statement.................................................................5
M2 A range of management accounting techniques...................................................................8
D2 Analysis and Interpretation of data.......................................................................................8
TASK 3............................................................................................................................................8
P4 Advantages and disadvantages of different types of planning tools for budgetary control...8
Budgetary control........................................................................................................................8
M3 Analysis on use of different planning tool for preparing and forecasting budgets.............10
TASK 4..........................................................................................................................................10
P5 Comparison on how organizations are adapting management accounting system to resolve
financial problems.....................................................................................................................10
M4 Analysis on how management accounting lead to sustainable success..............................12
D3 Evaluation of how planning tools respond to solve financial problems.............................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Management Accounting is determine as a presentation of accounting information so as
to formulate different kinds of policies which can further be adopted by management of an
company in order to perform day-to-day activities (Lavia López and Hiebl, 2014). Thus, in
simple words, management accounting assist management in doing entire functions that includes
planning, organising, staffing, directing and controlling. Airdi is a company which is taken in
this assignment and firm deals in manufacturing Hand Dryer thus, this report will discuss about
different methods of management accounting for performing business operations in a better
manner.
Present report will focus on understanding of management accounting system, along with
application of range if management accounting technique is included in this assignment. In
addition to this, explanation of use of planning tools for management accounting is mentioned in
this report. Other than this, comparison of ways are included in this assignment which different
organisation can use for responding to financial issues and problems (Hiebl, 2014).
TASK 1
P1 Management accounting and its different types
Management accounting is consider as a process in which accounting information that are
obtained from financial accounting and cost accounting are interpreted, analysed, identified and
presented. Thus, it can be said that management accounting assist managers of a company in
formulating policies and making decision for day-to-day activities. Therefore, in an organisation
management accounting plays a crucial role in determining as well as forecasting cash flow. For
operating its business in a better manner it is important that Airdi has proper management
accounting department who can help managers in preparing effective reports of budget.
Company is manufacturing Hand Dryer, and is well recognised around the globe.
There are different types of management accounting system which Airdi can incorporate
for operating its business in an effective manner, therefore, crucial management accounting
system are explained below for better understanding (Chiarini and Vagnoni, 2015).
Job Costing System: This is a system that after monitoring the expenses helps an an
individual and management in assigning manufacturing cost for a specific products. Job Costing
system can be used by Airdi and is applicable when company's products are identical and can
1

keep a record of order expenses. Therefore, job costing system is used by companies when they
have products that are different from one another. A significant variations in products
manufactured can be seen such as direct material can be directly linked with direct labour. Main
requirement of this, is to evaluate the actual cost and revenues of a product and commodity.
Price Optimising System: This is basically used for controlling the prices of resources,
thus, price optimising system can be incorporated by company so as to decide price of multiple
goods at the same time (Senftlechner and Hiebl, 2015). Therefore, for a firm it assist them in
determining the effects of demands after fluctuation in different price level. Moreover, Airdi
company will use this method in order to determine the price as per customer's segments so that
company can know their responses as per different price levels. Main purpose of this is to deliver
best quality products to its customers according to the needs and wants under limited period of
time.
Inventory management System: This basically guides company with when to order a
product and in what proportion. Inventory management system helps firm in minimising the total
cost of inventories so that organisation can generate high level of return. Therefore, with the help
of this method Airdi Ltd., can manufacture their products and keep them as a stock so that it can
be used whenever it is required. This can be further applied by using three different method
which is important for managing the inventory system are LIFO (Last In, First Out), FIFO (First
In, First Out) and ABC. In relation with Airdi Ltd., they are using ABC form for selling their
product. In this category products that comes under the category of A are need for attention
because it has a great impact in terms of finance. Likewise, B and C denotes moderate and low-
value commodities respectively (Bovens, Goodin and Schillemans, 2014).
Cost Accounting System: It is determine as a framework which is used by companies in
order to estimate cost of their products in order to get profitability. Therefore, it is crucial for
Airdi to know what kind of goods are profitable and which one are not. In addition to this, Cost
accounting system helps company in knowing and estimating closing value of material
inventory, work in progress and inventory of finished commodities so that financial statement
can be prepared. This includes two main cost accounting system i.e. job order costing: It is cost
accounting system that compile different manufacturing cost separately as per the job assigned.
Process costing: This is determine as a cost accounting system that accumulates cost of
2

manufacturing according to the separate process. The main purpose of cost accounting system is
to estimate cost and revenue for the company (Shields, 2015).
P2 Methods for management accounting Reporting
Management accounting reporting helps management to determine the actual
performance of the organization. These reports are prepared weekly, monthly, quarterly or
yearly. It involves collection of data that gives material information about operations of
organization. Management reports helps the managers to forecast important business decisions.
Airdri Ltd. is a hand dryer manufacturing company. Airdri needs management accounting report
for better decision making because it will help the company to determine existing and future
operations and will provide accurate financial information. Different management accounting
reporting methods are as following:
 Budget Reports: Budgeting reports are prepared to analyze related estimated cost. It is
prepared on the basis of expenditure of previous years. It will help Airdri to evaluates the
performance of different departments and help them to control costs. It will also help in
analyzing the actual performance with budgeted performance (Schaltegger, and Burritt,
2017). These reports helps in providing incentives to employees and motivates them to
achieve desired objectives. Therefore, with the help of this report, managers of Airdi Ltd.,
will be able to compare their business performance in one financial year.
 Inventory and manufacturing reports: These types of reports are prepared by
manufacturing companies to make inventory and manufacturing process efficient. It
includes labor cost, per unit overhead cost and other cost which are included in
manufacturing process. This report will help Aridri in comparing different assembly lines
of business which provides area of improvement so that performance of the departments
and employees can be improved and it will enhance efficiency and effectiveness.
 Job costing reports: This kind of reports helps in determine the cost, expense and
profitability of particular projects. This report will help Aridri to identify the profitable
and non profitable business activities so that they can increase their efforts by focusing on
profit making activities. It will help them in reducing wastage of cost so as to make the
project more successful (Klemstine and Maher, 2014).
3

M1 Benefits of management accounting system
Job Costing System and its benefits:
By incorporating this system, Airdi Ltd., can evaluate changes in behaviour of customers
as per different-different price strategy. Other than this, it assist firm in evaluating the quality of
work which is being done.
Price Optimisation System and its benefits:
With the help of this method Airdi Ltd., can determine the attitude and behaviour of
consumers based on different prices. As a result, through this method company can maximise its
profits (Bennett and James, 2017).
Cost Accounting System and its benefits:
This system measures the efficiency of process which is being incorporated by company
for making improvements. Cost accounting system is applicable for reducing cost of a
commodity.
Inventory Management System and its benefits:
Through this system Airdi Ltd., can improve their accuracy level and effectiveness as
well. It is being used by most of the companies because of its cost and time saving tendency.
With the help of this, stock of inventory can be maintained which can be used for future purpose.
D1 Critical evaluation on management accounting report integrated within organisational process
Types of reporting Integrated within organisational process
Budgeting Report Airdi, with the help of both integrated organisational
process and budgeting reports can make path for
companies activities so that targeted goals and objectives
can be achieved in an effective manner.
Job Cost Report Main purpose of Airdi Ltd., should be of achieving cost
objectives so that price strategies can be decided by
minimising overall cost of a product.
Inventory and manufacturing
report
This report will provide benefit to Airdi Ltd., to track and
monitor procedure of inventory.
4

TASK 2
P3 Cost calculations to prepare an income statement
Cost indicates the value of money which are being put or used for manufacturing product
so that the same can be deliver to its customers (Cleary, 2015). This includes material required,
resources, time and utilities etc., Furthermore, cosy are of two types:
Fixed Cost: These are constant and doesn't change even after increase or decrease in
number of products or services which are being produced or sold. Fixed cost comes under
operating expenses which cannot be avoided by a firm. This is moreover used in break even
analysis so that level of pricing can be determined. For example: property taxes which has to be
Variable Cost: These are the cost which vary with the proportion of production output.
Variable cost can increase or decrease and it depends upon the goods produced. Therefore, it can
be said that this depends upon the products which are manufactured per unit. In order to calculate
variable cost one can use this formula that is given below:
Total variable cost = Quantity of output X Variable cost per unit of output.
Marginal Costing: This determine as a rate at which a change in total cost can be seen
because of the increase in production by one unit. Marginal cosy is important for an organisation
as it helps a company in taking effective decision for their business operations (Endenich, 2014).
Net income = (sales revenue – marginal cost of goods sold) = (contribution – fixed cost)
Absorption Costing: It is a cost accounting method for valuing inventory. It includes all
the costs of manufacturing a product like fixed and variable costs. This costing method gives a
more comprehensive and accurate view on how much it really costs to produce your inventory.
The components of absorption costing are: Direct material, direct labour, variable manufacturing
overhead and fixed manufacturing overhead. It is possible to use absorption costing to allocate
overhead costs for inventory valuation purpose. Absorption costing is a time-consuming and
expensive costing system.
Net Incomes = (Sales revenue – Cost of goods sold) = (Gross profit – Selling and Administrative
expenses)
Working Notes:
Income statement on the basis of marginal costing:
Particulars Amount
5

Sales revenue = (no. of units sold x selling price of each = 600 x 55) £33000
Marginal Cost of products sold: £9600
Production = (units produced x marginal cost per unit = 800 x 16) 12800
closing stock = (closing stock units x marginal cost per unit = 200 x
16) 3200
Contribution £23400
Fixed cost ( 3200+1200+1500 ) £5900
Net profit £17500
Income statement according to absorption costing:
Particulars Amount
Sales = (selling price x no. of units sold = 55 x 600) £33000
Cost of goods sold = (total expenses per unit x actual sales = 23.375 x 600) £14025
Gross profit £18975
Selling & Administrative expenses = (variable sales overhead x actual sales +
selling and administrative cost = 1 x 600 + 2700) £3300
Net profit/ operating income £15675
Break-Even Analysis: This is a kind of tool which is used by company in order to
determine calculations so that on the basis of this margin of safety can be examined. In addition
to this, it assist firm in determining the relationship between variable and fixed cost. Most of the
company with the help of this, forecast their sales in order to know sat which point firm can
6

generate the high level of revenues. Therefore, in relation with Aridi Ltd., Through break-even
analysis they are being able to determine how much products are needed to be manufactured so
as to reach the estimated cost level (Budding, Grossi and Tagesson, 2014).
A. Products that are to be sold in Break Even points.
Sales per unit 40
Variable costs VC = DM +
DL 28
Contribution 12
Fixed costs 6000
BEP in units 500
B. Sales revenue in relation with Break-Even points
Sales per unit 40
Variable costs VC = DM + DL 28
Contribution 12
Fixed costs 6000
Profit volume ratio PVR = Contribution /
sales * 100 30.00%
BEP in sales 20000
C. Quantity of goods that are to be sold so as to generate a profitability of £10,000
Profit 10000
Fixed costs 6000
Contribution 16000
Contribution per unit 12
Sales 1333.33
7

D. Margin of safety after selling of 800 products
Formula for MOS
Margin of Safety = Budgeted or actual sales – Sales required to Break-Even
Actual sales in units 800
Break even sales in units 500
Margin of safety 37.5
Margin of safety (MOS): It is determine as a principle of investigating the difference
between break-even and budgeted sale of an organization. According to the above given
calculation it can be analysed that if a company has a actual sale of 800 units and its break-even
sale is of 500 units than their marginal cosy will be of 37.5 units.
M2 A range of management accounting techniques
Management accounting has a wide range and it includes several techniques that assist an
organisation in collecting valuable internal information. Therefore, by using these kinds of
techniques managers of Airdi Ltd., can prepare a report which can further help company in
taking effective decisions. Henceforth, some of techniques that can be incorporated by the firm
are explained below:
Standard Costing: It is determine as a technique that assist firm in recording account
transactions and through this company can further evaluate the difference between standard and
actual cost (Pavlatos, 2015).
Marginal Costing: This kind of technique is applicable and is accountant of Airdi Ltd.,
can use for decision making as it control cost and maximize profits in return.
D2 Analysis and Interpretation of data
With the help of above data mentioned it can be evaluated that management accounting
uses various kinds of methods for calculating cost of product according to the unit manufactured.
Under absorption cost all cost are incorporated for calculation part whereas in marginal cost,
only the variable cost is taken into consideration. Therefore, with the help of this, the value that
is evaluated on the basis of absorption and marginal cost is £15675 and £17500 respectively.
8

TASK 3
P4 Advantages and disadvantages of different types of planning tools for budgetary control
Budgetary control
Budgetary control refers to planning that helps management in allotment of duties and
authorities, to assist in estimating the plans and policies for future, set standards for result,
provide aid to analyze the standard and actual performance with which management can analyze
performance of operations (Banker and et. al., 2014). It helps in minimizing the wastage in
unprofitable areas of operations and focus their time and skills in profitable areas. Every
organization need to prepare budget to allocate resources to mid-level and lower-level for better
functioning of operations and to achieve objectives and goals.
As any other organization Aridri ltd. also needs budgetary control for smooth
functioning of its operations. Managers needs to control finance activities in less productive
areas because this company deals at small scale. Therefore, every single pound in business is
precious. Moreover, budgetary control also helps in reducing risks which may arise due to
natural disaster(earthquake, flood etc.), fluctuations in economic conditions(changes in demand
and supply, exchange rates, interest rate, inflation, return on investment etc.), innovation and
introduction of new technology and terrorists attack. These kind of risks can affect organization
unfavourably. Thus, for reducing these risks, some control planning tools are given below:-
Planning Tools Usage Advantage Disadvantage
Forecasting planning
tool
Planning is viewed as
a roadmap for an
organization to
achieve its goals and
objectives. Forecasting
means prediction for
future activities.
Therefore, forecasting
tools are used to
anticipate future
uncertainties related to
Aridri Ltd. can use
forecasting tool to
build out strategies to
reduce risk and
achieving competitive
advantages.
As no one can predict
future with certainty,
any kind of change can
be harmful for the
organization because
then it will not be
according to the
forecasting (Mohamad
and et. al., 2015).
9

the business. In
context with Aridri,
forecasting tools can
be used for analysing
the risk and
opportunities that may
occur in future.
Contingency planning
tool
Contingency refers to
happening of an
emergency event and
this tool assist
management in
managing funds for
emergencies that may
occur in near future. In
context with Aridri
Ltd. it can help in
managing emergency
events by building out
strategies.
It help Aridri Ltd. in
minimising the
negative impact of
emergency events on
organization. This will
help them for the
smooth functioning of
operations.
It can be expensive for
the organization
because they have to
train their employees
for the emergencies.
M3 Analysis on use of different planning tool for preparing and forecasting budgets
Controlling budget of a company is one of the main function of management accounting.
Under this process, managers can use different planning tools like contingency and forecasting
tools. Using these techniques, they can prepare proper future budget plan and prevent business
from severe conditions like natural disasters, terrorists attacks and more. These tools also help
enterprises to develop policies and strategies for budgetary control as well. Thus, in context with
Aridri Ltd., these planning tools aid its managers and working staff to work more efficiently
(Qian, Burritt and Chen, 2015).
10