Management Accounting Principles and Effective Planning Tools Analysis

This report provides a comprehensive analysis of management accounting principles and their application within Airdri Ltd, a UK-based manufacturing company. The report delves into the core concepts of management accounting, including the principle of causality and the role of various systems such as job costing, inventory management, and cost accounting. It explores different management accounting reporting methods like performance reporting, account receivable reporting, and budgetary reporting. The report examines cost analysis techniques, specifically marginal costing and absorption costing, and demonstrates their application in preparing financial statements. Furthermore, it investigates various planning tools used in budgetary control, analyzing their effectiveness and comparing how different companies adapt management accounting systems to address financial challenges. The report concludes by evaluating how these planning tools contribute to resolving financial problems and fostering sustainable success for the company, offering valuable insights into the practical aspects of management accounting.

Management Accounting
principles and effective
planning tools for
managing accounts

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
TASK 1............................................................................................................................................1
P1. Explanation of concept and systems of management accounting.........................................1
P2. Explaining methods that are used in entity in correspondence to management accounting
reporting.......................................................................................................................................2
M1. Evaluation of benefits related to system of management accounting along with their
applications..................................................................................................................................4
D1. Critical evaluation about integration of management accounting system and reporting in
processes of company..................................................................................................................4
TASK 2............................................................................................................................................5
P3. Calculation of costs with appropriate cost analysis techniques.............................................5
M2. Application of diverse management accounting techniques accurately and producing
documents....................................................................................................................................9
D2. Production of financial reports which are accurately applied and interpretation of data.....9
PART B.........................................................................................................................................10
TASK 3..........................................................................................................................................10
P4. Explaining different tools of planning in budgetary control...............................................10
M3. Analysing planning tools with execution in budgets.........................................................12
P5. Comparison among companies to define how they adapt certain management accounting
systems for solving problems in finance...................................................................................12
M4. Analysing how companies respond to financial problem and lead sustainable success....14
D3. Evaluation about how planning tools solves problems for funding hat results in sustainable
success for company..................................................................................................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Management accounting principles serves core requirements of internal management for the
purpose of resource application, capacity utilisation, decision support objectives, customer value,
etc for reaching organisational goals optimally. It is the provision to make rational decisions for
measuring overall strategy about practices of entity (Mazina, 2018). The information collected
comprises of all fields accounting which improve knowledge of administration about tasks of
venture identifying with expenses together with decisions made by business concerns. For
understanding management accounting principles, Airdri Ltd is taken into consideration. It is a
medium sized entity operating in manufacturing sector of UK. It manufactures range of hand
dryers which excel in reliability together with quality.
The report explains management accounting, its system and their essential requirements. It
also explains management accounting reporting methods, adequate techniques through which
cost are analysed and income statement are prepared. Further, use of certain planning tools are
mentioned along with how businesses could respond by the tools to solve issues of finance.
PART A
TASK 1
P1. Explanation of concept and systems of management accounting
Concept of management accounting says about using accounting information for taking
scientific decisions and solving business issues. In other words, it is an accounting field that uses
past period information in order to calculate addition to project upcoming information about
finance. Within Airdri Ltd, key principles of management accounting that are used by
accountants are underneath:
Principle of Causality: It is requirement for cause addition to effect insights. Use of the
principle on Airdri Ltd enables modelling of costs thar rely on relationship among inputs as well
as outputs of resources in manufacturing of hand dryers.
Principle of Analog: It is implication of casual insights from management within their
tasks. In Airdri Ltd, use of the principle governs potentials of authorities for application of
insights that are gained from modelled casual relationships on the basis of existing and past
results of ongoing efforts.
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In an organisation, key role that management accounting plays is of aiding managers for
decisions of betterment of the enterprise. In case with Airdri Ltd, management accounting
performs significant role of maintaining ideal structure of capital, controlling deviations and
taking business decisions. Management accounting systems are internal approaches that provides
critical information about operations performed in a firm. It is major source of essential data of
company in relevance to managerial decision making. Within Airdri Ltd, some management
accounting system and essential requirement of each are as follows:
Job costing system: The system takes known expenses of jobs or services that are
provided by a venture and estimates costs about upcoming project on the basis of specifies of
existing project. In association to Airdri Ltd, job costing system comprises estimation of
expenses of material, labour along with overhead. Essential requirement in the company of the
system is to provide offerings varying in cost which depends on specifications shared by
customers. Along this, its is essentially required for calculating all expenses of project which
provides accurate, consistent, etc price point that results in generating accuracy of information.
Inventory management system: The system with the help of which managers are able to
track available goods in form of resources and estimate the required ones in supply chain
(Lebedev, 2019). In Airdri Ltd, purpose of adopting inventory management system is to reduce
carrying costs and track resources. Key requirements of this kind of system in the manufacturing
entity is to ensure that the organisation have sufficient materials along with goods so to meet
demand of departments without creating excess stock in up to date manner.
Cost accounting system: A facet that governs actual cost to manufacture or produce a
product through focusing on all types of expenses within supply chain. Management of Airdri
Ltd adopts cost accounting system for forecasting and controlling product costs. Through this,
project managers check raw material required at each manufacturing stage. Essential requirement
concerned with this category of system in Airdri Ltd is to lower cost of operations through
controlling relevant items and understanding closing value that are associated with work in
progress, finished product inventory and closing values of stock so to have reliable information
about product costs.
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P2. Explaining methods that are used in entity in correspondence to management accounting
reporting
In all kinds of business, management accounting reporting act as great significance in
getting overview of organisational performance for specified point of duration. To plan, regulate,
measuring performance and drafting decisions, departmental heads of Airdri Ltd uses methods
which are part of management accounting reporting as per requirements. Some methods are as
explained in relevance to Airdri Ltd:
Performance reporting: In general terms, performance reporting is about collecting work
performance of venture, analysing it, drafting effective report and sharing it with respective
stakeholders (Paterson and Et. Al., 2018). In Airdri Ltd, the method is part of organisational
communication management plan. Within the manufacturing entity, the mechanisms offer deep
insight about working and provide an accurate measure for strategy to achieve corporate goals.
Account receivable reporting: The method shows balances of unpaid invoices and time
period for which they are already outstanding. Using this method of reporting, management
accountants of Airdri Ltd identifies open invoices and permits them for enduring at topmost of
deliberate paying clients. Being the entity relying on credits, producing accounting receivable
report is key.
Budget reporting: This is very crucial to measure organisational performance. All
establishments draft overall budget with the purpose of understanding grand scheme related to
the business. In Airdri Ltd, the method helps in making estimations as per previous experiences.
Great budget reporting caters for several unforeseen situation which have huge chances to arise.
It is internal reporting method through which managers compare forecasted or budgeted
projections with real efficiency or performance number attained in an accounting period.
Inventory management reporting: A method which summarises existing stock of business
is described to inventory management reporting. It distils details about existing stock with the
organisation, which of commodities are selling quickly, category performance, status related
information addition to performance of inventory (Nicasio, 2021). In Airdri Ltd, inventory
management reporting plays role of maintaining physical inventory in manufacturing process
and keeping constant check on upholding adequate level of stock.
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With all the mentioned methods of accounting reporting, it becomes easy for managers to
get overview of business performance at desired time. With these, management of Airdri Ltd
makes effective decisions, control operations and plan for future.
M1. Evaluation of benefits related to system of management accounting along with their
applications
Management accounting
system
Benefits and applications
Job costing system  It delivers an efficient way for managers of Airdri Ltd
to calculate exact expenses that are needed for
overhead, etc prior manufacturing a product.
 In the company, the system is applied so to evaluate
profitability together with planning for manufacturing
specific commodity or not (Zdravkoski and
Nikolovski, 2017).
Inventory management system  In Airdri Ltd, the system benefits managers to have
information about what is in stock as well as what to
order for meeting demand.
 Application of inventory management system in
Airdri Ltd facilitate in better planning about future
stock, minimising delays and solving stockouts
situation.
Cost accounting system  Cost accounting system benefits in Airdri Ltd by
reducing various unnecessary costs, identifying reason
for loss or profit, fixing prices of different products
and dodging errands of performance.
 It is applied in the manufacturing venture for helping
financial heads to prepare statements, conducting audit
so to prevent frauds and controlling deviations in
costs.
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D1. Critical evaluation about integration of management accounting system and reporting in
processes of company
Organisational processes determine what type of working is required for reaching at great
heights. In order to complete all set processes of company, it is essential for managers to adopt or
complete stages through management accounting systems along with reporting so to attain
efficient results (Kusmiati, Ungkari and Basit, 2020). For example, inventory management
system and inventory management reporting help managers of Airdri Ltd to complete processes
of manufacturing hand dryers by maintaining as well as providing required stock to departments.
With this, it is critically evaluated that all the management accounting systems should be applied
in adequate manner to attain desired level of profitability and efficiency. With all this,
management accountant of organisation also integrate systems like cost accounting, job costing,
etc with reporting mechanisms that are budget, performance, etc so to complete all processes in
defined criteria.
TASK 2
P3. Calculation of costs with appropriate cost analysis techniques
Cost is said to be a monetary value that is totally spent for manufacturing and selling
products and services. There are ample number of costs that incur in all businesses type. For
managers of Airdri Ltd, understanding nature of cost is essential to craft informed decisions. It
assist them to determine profitability of operations and using effective strategy to set product
prices. There are two cost analysis techniques that finance department of Airdri Ltd uses for
producing income statements. Description and calculation of costs through techniques is as
follows:
Marginal costing: A technique in which variable costs are charged on cost units as well as
fixed costs that are attributable for the period are written off for contribution in specific period.
In other words, it is ascertaining additional cost along with effect on profits of changes in type of
results with the help of differentiating among fixed and variable costs (Wessels and Steenkamp,
2017). In Airdri Ltd, using marginal cost benefits in fixing selling product price, making realistic
and uniform valuation of finished goods and reducing overheads.
Absorption costing: A technique which accounts for all types of costs related to
manufacturing or production is absorption costing. Finance managers uses it for absorbing costs
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which are incurred on a commodity. In Airdri Ltd, key purpose of using the method is to take all
manufacturing costs into consideration while producing income statements. The technique
benefits entity in calculating output costs along with provides closing inventory valuation.
Financial managers of Airdri Ltd are asked by administrators to prepare income statement and
other financial statements through using certain techniques. In this aspects, preparation of
income statement, reconciliation statement, calculation of BEP and many more are as follows in
case with Airdri Ltd:
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M2. Application of diverse management accounting techniques accurately and producing
documents
Management accounting techniques guides in preparing all financial reporting documents so
to analyse business position. In Airdri Limited, key management accounting techniques applied
are marginal costing and absorption costing techniques. With these techniques, documents of
finance that are income statement, reconciliation statement and many more are produces by
accountants (Huebner, Fleisch and Ilic, 2020).
D2. Production of financial reports which are accurately applied and interpretation of data
Financial reports could be described as formal records associated to financial activities of
company. In Airdri Ltd, financial reports includes presentation of relevant information in proper
structured manner that other easily understand. Income statement is a financial record that
comprises income and expenditures of entity. Using absorption costing method, Airdri Ltd have
faced new loss of 13000 pound in April and net profit of 15000 pound in May. At same time, the
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