Management Accounting Report: Cost Analysis for Airdri Ltd.

This report provides a comprehensive analysis of management accounting principles and their application within a business context, specifically using Airdri Ltd. as a case study. The report explores different types of management accounting systems, including job costing, price optimizing, cost accou...Read More

Management Accounting

Table of Contents
INTRODUCTION...........................................................................................................................4
LO1..................................................................................................................................................5
Management accounting and different types of management accounting systems...................5
Different methods used for management accounting reporting..................................................6
Benefits of management accounting systems and their application............................................7
Integration of management accounting systems and management accounting reporting within
organisational processes..............................................................................................................8
LO 2.................................................................................................................................................9
Calculation of costs using techniques of cost analysis to prepare an income statement using
marginal and absorption costs.....................................................................................................9
Application of management accounting techniques to produce appropriate financial reporting
documents.................................................................................................................................12
Application and interpretation of financial reports for a range of business activities...............12
LO 3...............................................................................................................................................13
Advantages and disadvantages of different types of planning tools used for budgetary control
...................................................................................................................................................13
Different planning tools and their application for preparing and forecasting budgets.............14
LO 4...............................................................................................................................................15
Comparison of how organisations are adopting management accounting systems to respond to
financial problems.....................................................................................................................15
Analysis of how in responding to financial problems, management accounting can lead
organisations to sustainable success .........................................................................................17
Evaluation of how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success..............................................................17
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................18

INTRODUCTION
Managerial accounting consider collection, examine and coverage information about the
dealing and funds of a business concern. These reports are specifically meant for the use of
managers of the business and are not meant for external stakeholders. Objective of management
accounting is to use these reports and help managers in taking accurate decisions about
controlling business activities to aid in growth and profitability of the business. The Berkeley
Partnership is a financial consultancy organisation which provides it's clients with crucial
information they need for managerial decision-making. To understand various concepts of
management accounting Airdri Ltd. which is located in Technology House, Eynsham OX29
4AQ, UK is taken. It is a provider of sustainable hand dryers which are designed to dry hands
quickly and are recognised for their reliability, low energy consumption, longevity, reduced
noise and ease of service. In this report different methods of management accounting reporting
and techniques to prepare financial statements, planning tools for budgetary control and how
management accounting systems help in responding to financial problems are discussed
(Amiram, Bozanic and Rouen, 2015).
LO1
Management accounting and different types of management accounting systems
According to the Institute of Management Accountants (IMA) : “Management accounting is
a occupation that affect relation in management decision-making, devising preparation and
execution establishment systems, and render skillfulness in financial reporting and control to
assist management in the preparation and execution of an administration strategy”.
According to Chartered Institute of Management Accountants (CIMA) : “Management
accounting is analysing information to advise business strategy and drive sustainable business
success.”
Management Accounting systems help Airdri Ltd. in analysing costs associated with
manufacturing of hand dryers that provide fast hand drying services to it's customers, preparation
of plans, determining ways of reducing prices, decision making, organising and understanding
financial data, identifying business problem areas and strategies of solving them etc. so that
performance of the business can be improved and sustainable profits can be gained for successful

running of the business. Some management accounting systems used by Airdri Ltd. are as
follows :
Different management accounting systems
Job costing system : This system is used to assign manufacturing cost to each individual
product while keeping track on expense monitoring. The products provided by Airdri Ltd. are
sufficiently different from each other and each has a significant cost. Various types of hand
dryers based on the customer requirements are manufactured so as to satisfy different needs.
Whether a robust, cast iron dryer is needed to sustain high usage, or a quiet, contemporary dryer
is preferred by the customer, Airdri has a dryer to fit every wash room environment (Bogsnes,
2016).
Price optimising system : This system is used to take control of the prices of resources
and help in deciding prices of multiple products at a time. This helps in determining how demand
will fluctuate at different price levels. Airdri Ltd. use this system to tailor prices for different
products based on the demand of the customers. It also helps in determining pricing structures
for promotional pricing, initial pricing and discount pricing. Before determining the prices
product life cycle, category goals of different products and competitors pricing strategies are
considered.
Cost accounting system : It is a framework used by firms to estimate the cost of their
products for profitability analysis, inventory valuation and cost control. Airdri Ltd. uses this
system to track the flow of inventory continually through the various stages of hand dryer
production. It allows the company to maintain just-in-time inventory system where materials are
ordered from vendors and suppliers on an as needed basis. It helps production managers and cost
accountants to check the inventory at every stage of production (Chenhall and Moers, 2015).
Inventory management system : This system is a combination of technology and
processes and procedures that oversee the monitoring and maintenance of stocked products and
determine if they are assets or raw materials or finished goods ready to be delivered to the end
consumers. It helps the managers of Airdri Ltd. to map the complete journey of the product.
Through accurate tracking of goods, the company can minimize waste, analyse trends and make
better investment decisions.
Vital role of management accounting in Airdri Ltd

 It help the company to make control on the business activities and actions. It is also
though using key information from internal report, managers become competent to focus
on that activities which are outcome into low profitability or high costs.
 MA plays a vital role in developing effective planning of different type of available
resources. It is only possible as per the accumulated information, managers of the
company can competent to monitor future activities that help in efficacious planning.
Different methods used for management accounting reporting
Management accounting reporting includes collection of data that provides useful
information to the managers for planning, regulating, decision-making and measuring
performance of the business. These reports provide information needed to cut costs, cut product
lines that are not profitable and invest in goods that offer best financial returns. The various
reports prepared by management and their benefits for Airdri Ltd. are as follows : Budget report : Financial data is documented and recorded in a budget report which is
used by management to compare the estimated, budgeted projections with actual
performance achieved during a period. Budget report lists all the sources of earnings and
expenditures that are required to achieve organisational goals and objectives. Airdri Ltd.
can use these reports to limit the expenses during production and complete the work
within the estimated budget amount (Dent and Barry, 2017). Accounts receivable ageing reports : It is a periodic report that categorizes a company's
accounts receivable according to the length of time an invoice has been outstanding. It
helps in determining the financial health of company's customers and their ability to pay
their debts. Airdri Ltd. can use these reports so as to monitor its collection policies to
reduce old bad debts and maintain liquidity of the company. Job cost reports : These reports are used to identify cost, expenses and financial
efficiency and profitability of each particular job. These reports help in evaluating the
projects that are more profitable than others and focusing efforts on such jobs. Costs of
each job can be evaluated and waste areas can be identified to reduce overall costs. Airdri
Ltd. can use these reports to decide the pricing strategies of the company and reduce
production costs with providing good quality products (Khan and Jain, 2018).
 Inventory and manufacturing reports : The proper reporting and accounting of
inventory increase the usefulness of financial statements for potential and actual

investors. These reports help in maintaining a balance between inventory investment and
customer service. They contain labour cost, per unit overhead cost and wastages
concerned with inventory which helps the managers to establish a comparison between
different processes of inventory management and introduce improvement if required.
Airdri Ltd. can use this system to manage the inventory levels of hand dryers and control
their manufacturing costs.
Benefits of management accounting systems and their application
Management
Accounting
Systems
Benefits Application
Job costing
system
 Help the managers to
calculate the profit earned on
individual jobs and ascertain
if it should be pursued in
future.
 Evaluation of quality of work
done.
 Airdri Ltd. can use this
system to determine the costs
of different types of hand
dryers it produces based on
their requirements (Lin and
et. al., 2018).
Price optimising
system
 Evaluate the customer
behaviour based on prices of
the products.
 Helps in determining prices
that maximizes profits.
 Airdri Ltd. can use this
system to reduce cost of
operations and set
competitive prices for
products/services.
Cost accounting
system
 Helps in controlling and
managing costs of materials,
labour and overhead costs.
 Correct business policies can
be formulated based on cost
information.
 Airdri Ltd. can use this
system in correct
ascertainment of cost of
products and control them by
formulating appropriate
policies.
Inventory
management
-Improves the accuracy of inventory -Airdri Ltd. can use this system to
maintain sufficient stock of the

system orders.
- Costs of warehousing extra
products can be reduced.
products on need basis of the
customers.
Integration of management accounting systems and management accounting reporting within
organisational processes
Type of reporting Integration with Airdri Ltd. processes
Budget report Helps in concentrating of business activities on targeted
results and objectives in a better way.
Accounts receivable ageing
report
Helps in making efforts towards timely collection of accounts
receivable and creation of proper collection policy.
Job cost report Helps in determining prices and reducing overall costs of the
product.
Inventory and manufacturing
report
Helps in better management of inventory levels and
manufacturing cost and accurately estimating the required
level of inventory level.
LO 2
Calculation of costs using techniques of cost analysis to prepare an income statement using
marginal and absorption costs
Cost is the monetary valuation of effort, material, origins, time and substitute consumed,
risk incurred and opportunity forgone in production and delivery of a good or service. For the
preparation of income statement marginal and absorption costings can be used which are
explained as follows :
Marginal costing : It is the cost of one additional unit of output. This concept is used to
determine the optimum production quantity for a company where it costs the least amount to
produce additional units. Variable cost is charged to units of cost, while fixed costs for the period
is completely written off against the contribution (Mokhtar, Jusoh and Zulkifli, 2016).

Absorption costing : It is a method of calculating the cost of a particular product by
taking into account indirect expenses as well as direct costs. Both variable and fixed costs are
included. A portion of fixed overhead is allocated to each unit of product along with
manufacturing cost.
Preparation of income statement by Absorption costing:
1_1573477314

Application of management accounting techniques to produce appropriate financial reporting
documents
Management accounting techniques are applied for preparing financial reporting
documents so that actual position of the company can be realised and decisions can be made to
increase profits. Airdri Ltd. can apply management accounting techniques which use different
costing methods for calculation of unit cost of the product. Marginal costing system helps the
management in decision-making as it considers additional costs involved in manufacture of each
unit of the product (Otley, 2016). Only variable costs are considered while fixed cost is
completely written off against contribution. It helps in making pricing decisions, showing true
profits for the period, preparing break-even analysis etc.
Application and interpretation of financial reports for a range of business activities
The above income statements are prepared using marginal and absorption costing
methods to determine per unit cost of production. It can be seen that fixed cost has been written
off to contribution in marginal costing whereas all the costs (variable and fixed) are considered
in absorption costing method to calculate per unit cost of the product. Per unit marginal-cost is

£16 and per unit absorption-cost is £26.53. Net profit as per marginal costing and absorption
costing are £5750 and £9792.4 respectively for Airdri Ltd. for the month of June. The net profit
of the company has increased in the month of June as compared to May which indicates that the
company is growing in the market.
LO 3
Advantages and disadvantages of different types of planning tools used for budgetary control
Budget is a financial plan for a defined period and includes planned sales volumes and
revenues, resource quantities, costs and expenses, assets, liabilities and cash flows. Budget is an
internal tools that help the management in setting goals, measuring outcomes and planning for
contingencies. These help in projecting sales trend, cost trends and overall economic outlook of
the market (Budgeting and business planning. 2019).
Budgetary control is the process by which budgets are prepared for the future period and
are compared with actual performance to find out out any deviations from the estimated budget
so that corrective actions can be taken by the management.
Different types of planning tools
The types of planning tools used for budgetary control are :
Budget Variance- It is a periodic measure which is used to quantify the difference between
budgeted and actual performance of the business. It can help Airdri Ltd. in identifying causes of
variation in income and expenses from the budgeted amounts and the remedies for reduction of
such variance.
Advantages- Help the managers in making efficient, detailed and forward looking
budgetary decisions. It also helps in identifying the changes that are required in business strategy
so that the costs can be controlled and responsibility can be assigned to make expenses only
according to the estimated budgets.
Disadvantages- The variance can only be realised at the end of a quarter and this may
lead to a delay in remedial actions; a detailed analysis of every factor needs to be done so as to
identify the root cause of such deviation.
Flexible Budget-This budget adjusts or flexes with change in revenue and expenses, based on
the amount of sales activity that actually occurs. Airdri Ltd. can modify the budget during the
year for actual sales levels, changes in cost of production or any change in business operations.

Advantages- It can be updated with current data of revenues and expenses for current
operating conditions. It can be adjusted with changing costs and profit margins. Flexible budgets
can help in controlling costs as various costs can be adjusted depending on the needs of the
organisation.
Disadvantages -It maybe confusing to use and requires an expert to mould the budget as
per requirement. It also requires high alertness to the changing conditions that leads to the
change in levels of sales/activities.
Master Budget- It is the sum total of all the divisional budgets that is prepared by all the
divisions. It includes financial planning, cash-flow forecast and budgeted profit and loss account
and balance sheet of the organisation (Yigitbasioglu, 2016).
Advantages - A complete overview of the company's budget can be gained. It reveals
about the earning and spending of the company as a whole. Master budge equals master planning
and helps in identifying problems and plan ahead.
Disadvantages - It is difficult to identify the department that is spending more. A master
budget is also difficult to update as it includes many categories and numbers of different
departments as a whole.
Different planning tools and their application for preparing and forecasting budgets
Organisations use different planning tools to prepare and forecast budgets. These tools
help ensure companies don't overspend and run out of cash. Budgeting and forecasting provides
a specific direction to the business so that it works within a framework and make decisions that
are forward looking. Airdri Ltd. can use budget variance in determining any accounting
discrepancy that led to the variance in estimated and actual amounts of the budget. The causes of
variation in incomes and expenses can be identified which help managers in making strategic
decisions to correct them. Flexible budgets can be used by the company to update its budget
based on unexpected expenses or fluctuations in income. These budgets can be changed with
change in activities of the company within the period for which budget has been prepared.
Master budget helps in integrating the activities of various departments of the company and
coordinating them so that a complete overview of the conditions of the company can be
ascertained (Pandey, 2015).

LO 4
Comparison of how organisations are adopting management accounting systems to respond to
financial problems
The basic definition of financial problems is the difficulty in paying off debts. Poor
budgeting is one of the most common reasons for facing financial problems. When the business
expenses are more than it's incomes due to lack in managerial skills to maintain a perpetual cash
flow in the business, poor accounting practices, mispricing of products, unnecessary
expenditures, offering too many sales promotion etc. These problems need to be timely
addressed so that they do not lead to financial crisis in the business and its ultimate closure.
Financial problems can be identified by comparing the actual performance of the business with
the standardised sets of performance indicators (Schaltegger and Burritt, 2017). These indicators
are both financial and non-financial measures used by the companies to reveal their success in
accomplishing their long-term goals. Some of the financial problems are as follows :
Mispricing- When the managers of the company are not able to properly evaluate all the
costs involved in manufacturing a product it leads them to price their products low. This leads to
loss to the company.
Heavy advertising expenses- In order to capture a large market, companies sometimes
spend a lot of money on promotional sales which increases the expenses more than profits
earned.
Over-expansion- Sometimes businesses expand into lines that are not their strengths and
this usually leads in selling parts of business, liquidate inventory and try to mitigate their losses.
Management accounting methods or tools
The companies can eliminate or reduce their financial problems by using following
tools :
Financial Governance-It refers to the way a company collects, manages, monitors and
controls financial information. It also includes how companies track financial transactions,
manage performance and control data, compliance, operations and disclosures. It can help Airdri
Ltd. in solving its monetary issues by strategically analysing and evaluating it's financial data
(Schaltegger and Burritt, 2017).
Key Performance Indicators(KPI)-It is a type of performance measurement tool. KPIs
evaluate the success of an organisation or a particular activity in which it engages. It provides a

focus for strategic and operational improvement, create an analytical basis for decision-making
and helps focus the attention of management on what matters most. It can help Airdri Ltd. in
comparing the levels of targets achieved to what it should have achieved. The loopholes because
of which the desired performance could not be achieved can be identified and corrective
measures can be taken (Shields, 2015).
Benchmarking-It is a comparison method with those of related and comparable
organisations. Benchmarking is used and applied within the management of organisations.
Several aspects of processes are evaluated against the best performance of other companies. It
can help Airdri Ltd. to access it's ability to tackle developments and improvements in
comparison to other rivalry companies.
Comparison between organisations to use MA tools to respond financial issues
A comparison between Airdri Ltd. and it's rivalry firm Dyson Ltd. Which is a British
technology company established in the UK by Sir James Dyson in 1991 and designs and
manufactures household appliances such as vacuum cleaners, air purifiers, hand dryers etc.
Basis Airdri Ltd. Dyson Ltd.
Financial
problems
The company is facing a financial
problem because it is not able to meet
it's sales targets of hand dryers. This is
causing a problem of low revenue
generation for the company and the
stock holding cost of hand dryers is
increasing it's expenses (Taticchi and
et. al., 2015).
The company is over spending on
research and development and
installing advanced and expensive
technology to make the hand dryers
more safe and hygienic for use. This
heavy spending is decreasing it's
profits and causing a financial issue.
Tools used The company should use Key
Performance Indicators (KPI) in order
to identify the issues related with poor
performance of the company. KPI
measures level of employee
performance, customer turnover, sales
frequency etc. and helps in developing
The company should use financial
governance as a tool to deal with the
problem by managing its financial
information more effectively and
efficiently so that the costs can be
reduced and expenses can be
controlled.

plans and strategies to increase sales.
Management
Accounting
system
The company can use inventory
management system so as to reduce
the cost of stock holding and properly
estimate the amount of stocks that are
to be maintained.
The company should use cost
accounting system to accurately
estimate the costs associated with the
manufacturing of the product, analyse
profitability of the products and reduce
costs.
Analysis of how in responding to financial problems, management accounting can lead
organisations to sustainable success
Management accounting helps in solving financial problems in sustainable success of the
organisation by helping the internal management in strategic decision-making which helps in
achievement of goals and objectives of the organisation. It helps in production of reports that
include information related to various financial aspects that help in understanding pricing,
budgeting and strategic planning. Airdri Ltd. can use management accounting to solve its
financial problems by using appropriate information by the management related to profit and loss
statements, net profit etc. and providing a complete analysis of information so that timely
decisions can be made to correct the strategies and planning them in forward looking manner
(Weygandt, Kimmel and Kieso, 2015).
Evaluation of how planning tools for accounting respond appropriately to solving financial
problems to lead organisations to sustainable success
Management accounting tools assists in providing sustainability information for
decision-making and improving the performance of organisation in today's competitive
environment for it's survival and sustainable success (Wildavsky, 2017). Along with using
appropriate management accounting systems, proper planning tools are also required to solve the
financial problems. Financial governance, key performance indicators, benchmarking etc. are
some most commonly used effective tools that help in analysing the causes of financial problems
in an organisation and forming strategies accordingly to eliminate or reduce such causes. Airdri
Ltd. Uses KPI to analyse the level of performance of it's employees, customer turnover, sales
frequency etc. so as to improve it's financial problem that is caused by not being able to achieve
it's sales targets.

CONCLUSION
It can be concluded from the above report that various management accounting principles
and techniques help the organisation to obtain and use the information required by the mangers
for achieving the goals and objectives of the organisation. Airdri Ltd. needs to apply and
implement these strategies and management techniques for it's survival and growth in
manufacturing sector. Management of the company need to use various accounting systems and
reporting methods to summarize their accounting transactions. Costing methods can be used to
determine net profits of the company and planning tools are helpful in budgetary control. Thus
financial reports so prepared helps in evaluation of performance of the organisation and how it
can be improved in future.
REFERENCES
Books and Journals

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Khan, M.Y. and Jain, P.K., 2018. Financial Management: Text, Problems and Cases, 8e.
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Shields, M.D., 2015. Established management accounting knowledge. Journal of Management
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Online
Budgeting and business planning. 2019 .[Online]. Available
through:<https://www.infoentrepreneurs.org/en/guides/budgeting-and-business-planning/>