Management Accounting Report: Ryanair Financial Performance Review

This report provides a comprehensive analysis of management accounting principles as applied to Ryanair, an aviation business. The report begins with a definition of management accounting, its methods, and its users, differentiating it from financial accounting. It delves into specific management...Read More

MANAGEMENT
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Definition of management accounting:.............................................................................1
P2 Method used for management accounting reporting:........................................................3
TASK 2............................................................................................................................................4
P3 Analysing the costs per unit with the influences of marginal and absorption al costing
techniques...............................................................................................................................4
TASK 3............................................................................................................................................6
P4 Discussion the merits and demerits of planning tools and budgetary control techniques.6
P5. To respond financial problems, organisation adapting management accounting system 7
REFERENCES................................................................................................................................9

INTRODUCTION
The process of accounting all the transactional activities which held during the period
will have positives reflection and outcomes in comparison with generating the satisfactory
outcomes as well as managing the business operations. The records of all the entries and
activities helps managerial professionals in analysing the requirements of funds for the
operations as well as for forecasting the budgets in respective period. In the present report there
will be discussion based on various operational activities, management accounting system, tools
and reporting system which will be helpful to the aviation business of RYANAIR. Similarly,
there will be ascertainment of effective costing technique with the help of analysing the costs on
the basis of marginal and absorption techniques. Additionally, there will be recommendation
regarding management accounting tools that will enhance business performance and will help in
resolving financial problems.
TASK 1
P1 Definition of management accounting:
Management accounting is that branch of accounting which assist managers to make
decision, devise companies strategies, help in making planning, and policies for the organisation.
They also provide required and necessary financial information to the managers as when
required.
The scope of Management Accounting is wide, as it includes both Cost Accounting and
Financial Accounting in it, but it different in functioning as cost and financial accounting is
generally done for the outsiders who are interested in the business but management accounting is
completely used by internal management, moreover it is done regularly not as year end or at end
of any financial accounting period. The methods for management accounting are; capital
budgeting, ratio analysis, budgeting and working capital analysis, etc.
Management accounting caters the internal needs of the business and work upon it, the
information collected by the managers are used by the managers internally to improve the
working of the organisation, they help to make plans and policies for the organisation. It is an
evolutionary subject and yet has scope of more to developed as profession so it is important to
have a detailed and proper knowledge of the subject as a whole.
Essential requirement of different types of management accounting system:
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The management accounting focuses on the proper functioning of the business so as there
are some management accounting system they are: (Fullerton, Kennedy, and Widener, 2013) Cost accounting system: It means to assist managers to control it cost of product or
operations in order to increase the profitability of the firm. The managers guides to take
up a best course of action in order to achieve the maximum result out of it. The Ryanair
has introduced Low Operation Cost, in regards to there customers, personal expenses,
Aircraft equipment cost, which enables the company to earn more profit in low time. Inventory management: This means to properly handle the goods or inventory of the
company from the manufacturing units to the point of it sales. The Ryanair has manage
the inventory by introducing to purchase aircraft's from the same company so as it would
be easy to manage the handling of aircraft's and training and accommodating there
employee.(Zoni, Dossi, and Morelli, 2012) Job costing system: It analyses the profit of the company by the revenues earned from
jobs. The Ryanair has able to earn from it reducing labour cost as the company tries to
maintain it's highly competitive workforce, by increasing there wages and benefiting
them with incentives.
 Price optimisation system: To adapt the best price for it products/ services which will be
suitable for the company and the customer willingness to pay for it will help the company
to gain profits. The company has introduced fair prices for the business travellers and the
conscious leisures so that get to travel on the plane this will bring profits to the pocket of
the company (Ward, 2012).
Users of Management Accounting Reports:
mManagement accounting is used by managers, employees and staff menbers who
work in the Ryanair.
Difference between financial and management accounting:
Basis Financial Management Financial Management
1.Meaning It refers to the preparation
of financial statement which
is used by outsider parties.
It refers to the guiding of
mangers for decision-
making,policy formulation
for the organisation.
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2.Scope It has narrow scope. The scope of management
accounting is wider as it
includes both financial
accounting and cost
accounting.
3.Users It is used by both internal
management and outsider
party who are interested in
knowing status of the
business
It is completely utilised by
the Internal management.
4. Compulsary It is made every year by the
company
It is made as per the
requirement of the
management
P2 Method used for management accounting reporting:
Management accounting uses different methods to get necessary information internally
and then frame it to use properly for internal managers which are:(Anandarajan, et. al 2012.) Budgets: To make a report on various operations of the company the best technique used
by the mangers is by preparing budgets. Managers prepare various types of budgets
including all the activities like Sales, Production, Administrative expenses, Sale expenses
and the financial budgets. As budgets are prepared in a comprehensive manner which
guides the managers properly in order to make plans and polices and how to formulate
them. They are the best suited for preparation of the accounting reports, as budgets enable
to set goals for the organisation and enable to check the difference between the set
standards and the actual performance. It directs different department in order to work
according to these budgets.(Lambert, and Sponem,) Cost Reports: The basic and the most important aspects of the company is to ascertain
cost for it products this can be done only by taking into account the various aspects like,
overheads, material cost, labour cost. These cost can be calculated with the help of
various costing methods like standard costing, marginal costing, job costing. Then cost
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reports are prepared which enables to guide managers to get information regarding the
various cost of the products and the selling cost incurred in. these cost reports are in brief. Performance Reports: Employees are the heart of every organisation so to ensure proper
functioning of the organisation, it is important to check and review the working of the
employees. These reports are generally prepared in context to the performance of the
employees of the company, it is an important as it generates the information about the
performance of the various employees and according to them the managers is enable to
give incentives to the employees and necessary action can be taken against the poor
performance of the employees. These reports are prepared to see the dedication of
employees in relation to the completion of the goals of the organisation within the set
time. Performance reporting is also done to measure and know the performance of any
project, to see whether the project is able to get the set target in the given time, or the
project should not be over budgeted, etc. which is important because this enables the
manger to assign the proper resources and to see the full utilisation of these resources.
(Cadez, and Guilding, 2012.) Project reports: They are prepared to know the details of a particular process or projects.
They are generally confined to one task or project at a given time. These reports are
generally prepared in order to get the necessary information regarding the project i.e.
what are there goals, what is the budget assign to the project, what is deadline to achieve
the project, what resources are assign to that project and what requirement will be there
for the completion of this project.
 Activity reports: This is related to the preparation of various reports in relation to the
activity performed. It is generally prepared by the salesperson showing day to day
activities.(Chenhall, and Moers, 2015. )
TASK 2
P3 Analysing the costs per unit with the influences of marginal and absorption al costing
techniques
Marginal Costing Absorption Costing
Variable cost is considered. Both fixed and variable cost is considerd
Profitability is measured by profit Probability gets affected due to inclusion
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volume ratio of fixed cost.
Main focus on contribution per unit Focus on net profit per unit
Decision making technique to know the
cost of production.
Apportion of total cost to the cost centre.
Presented the outline total contribution
of each product.
Present in conventional way.
Marginal Costing technique:
This costing technique is comprises with including all the variable costs and fixed costs
that are incurred during the period. However, in relation with determining the costs incurred
during the period of January to June for RAYANAIR the following listed analysis will bring
effective solution to this technique such as:
Particulars January February March April May June
Sales 1800 1440 2160 1800 1680 1920
Less: COGS 900 900 900 900 1020 840
Closing stock 780 180 180 120
CONTRIBUTION 900 1320 1440 900 840 1200
Less: Fixed costs 300 300 300 300 300 300
Less: Non manufacturing costs 100 100 100 100 100 100
Less: Actual manufacturing fixed
overheads 300 300 300 300 300 300
Net profit 200 620 740 200 140 500
Absorption costing technique: This is the costing technique which accounts all the
indirect as well as direct overhead production expenses. Therefore, it can be known as the
costing system which considers all the costs incurred during the period. Similarly, in accordance
with the business operations of RYANAIR the following adjustments will be effective to be
analysed.
Particulars January February March April May June
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Sales 1800 1440 2160 1800 1680 1920
Less: COGS 900 900 900 900 1020 840
Closing stock 780 180 180 120
Less: Actual Manufacturing
expenses 300 300 300 300 300 300
Gross profit 1200 1620 1740 1200 1140 1500
Less: Fixed costs 300 300 300 300 300 300
Less: Non manufacturing costs 100 100 100 100 100 100
Net profit 800 1220 1340 800 740 1100
Interpretation: By considering all the costs incurred during period which in turn will be
effective and helpful as to have appropriate analysis over expenses held during this period.
Therefore, the technique Marginal costing ass comprises with considering all the variable and
fixed expense, while absorption technique helps in considering all the costs including overhead
expenses. Similarly, in relation with a\such analysis there has been s generation of positive
outcomes which in turn will be effective and helpful as to have suitable revenue generation.
Therefore, it will be suggested to the professionals of RYANAIR that they must implicate the
use of Absorption costing technique due to its most favourable and appropriate outcomes.
TASK 3
P4 Discussion the merits and demerits of planning tools and budgetary control techniques
The management of financial requirements are quite necessary for the business as to have
satisfactory rise in efficiency, probability and ability to manage the business operations.
However, in accordance with operational performance of RYANAIR there is need to have
satisfactory control and administration over financial operations of the business such as:
Incremental Budgeting: These are the budgetary techniques which is prepared on the
basis of analysing the past rerecords of the business in each activity and operations. Thus, as per
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the name of this budget where the exiting budget will be replaced by the new budget with
implicating the new numbers on such budgets (Incremental Budgeting, 2018). Here, the
managerial professionals estimates that there will be rise in the expenses or income in the
following period so the amount of funds which were invested in previous budget will have
surplus amount in the next period.
Advantages:
 This follows the easiest technique and method which in turn will be fruitful for analysing
the accurate budgets for operations.
 It does not comprise with the influences of various techniques and methods to be used in
analysing the outcomes as it will be resolved and determined by the managerial
professionals of firm.
 All the department operated in the business will be given equal amount of weight-age and
funds for their activities. Therefore, there will be appropriate funds for all the units I
premise.
Disadvantages:
 The unnecessary expenditure will be made by the professionals over the non-profitable
units of activities. Therefore, the funds allocated to other units become short while non-
profitable units will have surplus amount of funds for operations.
 It may cause the perpetual resource allocation that will be effective for the business units.
Activity based budgeting: This budgetary control techniques enables the managerial
professionals and accountants to analyse the costs incurred in each units and piece of work on
which they make forecasts of the funds to be used in next period (Activity Based Budgeting,
2018). In accordance with RYANAIR it can be said that the firm will use this technique in
analysing the expenditure incurred in catering services and other services offered by them.
Advantages:
 It is the most accurate and satisfactory techniques which considers all the costs implied in
activities such as Overhead activities etc.
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 It enables and enhances the ability of managers in terms of planning and decision making
which will be effective and adequate as to haves appropriate analysis over all operational
work.
Disadvantages:
 It is technically very complex and tough techniques which will not only determined by
the managers. Therefore, the influences of accounting professionals in preparing and
analysing the costs is mandatory.
Zero based budgeting: These are the budgetary technique which incorporates with no past
records over any activity. Therefore, all the budgets will start with zero balance.
Advantages:
 This is the most flexible budgets and easy in terms of preparing because of no influences
of past records.
Disadvantages:
 There will be huge manipulation of the funds for the operations as the managerial
professionals will reflect higher costs to each activity and satisfy their personal
monetary needs.
P5. To respond financial problems, organisation adapting management accounting system
For organization, they manage different types of management accounting system some of
them are mention below :
 Balance Scorecard : it is a strategy used by Ryanair to analyses the performance of
the all the department. In this, reports are given to the managers and they try to keep
their eyes on the staff whether they perform well or not. In this report, data collection are
quite crucial to collect but informations are recorded or given by the managers and
executives which help in making the better decision for the company. This report help to
make clear communication between the staff and managers with providing good
framework. Its gives us clear cut information regarding the main objectives are meet to
the company or not . It determine the short, medium and long term objective of the
company. This gives overall view of only 4 aspect which help in growth and
development.
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 Benchmarking : it measure the quality of organisation and show the improvement areas.
It also analyses whether the organization achieve their targets or not. It also uses by
Easyjet to know the information which help to improve the performance of the
organisation. For basic survival of the company, benchmarking is used. It also identifies
the constitutes which help in superior performances it also identifies the difference
between actual performance and estimated performance. On the hand it only determine
the efficiency of the operational metric but does not help in overall activity. It is filled
with arrogance and complexity. For better improvement work, benchmarking is used in
opening new ideas and help in continuous improvement work.
 Financial governance :it is a set of rules issed by the regulators to ensure the financial
position and help in audit and controlling the cost of the product. Financial governance
help in representing the overall financial structure to the managers of Ryanair . This
is deteriorated from last many months. As the key focus is week in many areas such as it
does not take care of proper optimistic work and has poor budgeting with lack of
ownership also. It does not give proper financial information as the accountability is not
proper according to work. It provide report only in year ending but if managers need to
see the reports in between, no report is available. It is quite risk management system.
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REFERENCES
Books and Journals
Ward, K., 2012. Strategic management accounting. Routledge.
Chenhall, R. H. and Moers, F., 2015. The role of innovation in the evolution of management
accounting and its integration into management cont. Accounting, Organizations and
Society. 47. pp.1-13.
Zoni, L., Dossi, A. and Morelli, M., 2012. Management accounting system (MAS) change: field
evidence. Asia- 21PaAnandarajan, M, et. al 2012.cific Journal of Accounting &
Economics. 19(1). pp.119-138
Cadez, S. and Guilding, C., 2012. Strategy, strategic management accounting and performance: a
configurational analysis. Industrial Management & Data Systems. 112(3). pp.484-501.
Anandarajan, M, et. al 2012. Business intelligence techniques: a perspective from accounting
and finance. Springer Science & Business Media.
Fullerton, R. R., Kennedy, F. A. and Widener, S. K., 2013. Fullerton, R. R., Kennedy, F. A. and
Widener, S. K., 2013 Management accounting and control practices in a lean
manufacturing environment. Accounting, Organizations and Society 38(1). pp.50-71.
Lambert, C. and Sponem, S., 2012. Roles, authority and involvement of the management
accounting function: a multiple case-study perspective. European Accounting Review.
21(3). pp.565-589.
Online
Incremental Budgeting. 2018. [Online]. Available through
:<https://efinancemanagement.com/budgeting/incremental-budgeting>.
Activity Based Budgeting. 2018. [Online]. Available through
:<http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Activity%20Based
%20Budgeting.aspx>.
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