Management Accounting Report: Systems, Costing, and Profit Analysis

This report provides an overview of management accounting principles and their application within a business context, specifically referencing Ryanair Ltd. It explores various management accounting systems, including inventory management and job costing, highlighting their importance in cost reduction, operational efficiency, and informed decision-making. The report details different management accounting reporting tools such as budget and performance reports. Furthermore, it examines two primary costing methods, marginal and absorption costing, and demonstrates their application in calculating net profit. The analysis includes calculations and comparisons, illustrating how each method impacts profitability and financial reporting. The report underscores the significance of these tools for financial control, strategic planning, and achieving sustainable business development. This assignment is contributed by a student to be published on the website Desklib, a platform which provides all the necessary AI based study tools for students.

MANAGEMENT
ACCOUNTING

INTRODUCTION
Management accounting is the tool which is used by an organisation in order to lower per
unit costs in the production units and lead the organisation to have competitive advantage in the
market. However, this can be said that the management accountant is the perfect person who is
keen to apply these management accounting tools. Although, there is a strong need to have
certain tools which are used by the organisation in order to lower the business in an effective
manner. In every manufacturing business, it has been found that without having proper planning,
an organisation cannot attain their set aims and objectives. It is crucial to forecast their future
estimation by using various budgets (Abdel-Kader, 2011). This is because, budget is a key
financial plan for making overall predication of upcoming costs and expenses that are going to
be done during an accounting period. It happens to be comprehensive framework of operations
and financial planning for definite period of time. Basically, it is formulated for more than one
years so appropriate outcomes can be generated in more quick time. It is one of the crucial
planning tools of budgeting that can influence management to operate their business such as
planning, coordination and evaluating desired results.
TASK 1
P1 Management accounting and its different types of management accounting systems:
Management accounting is simply the process of explaining, analysing and summarising
the financial and non- financial information in a most effective manner. This is the method which
is used by the organisation for making the business sustainable (Merchant, 2012). However, this
can be said that the management accounting is the report which comprises the entire information
and made available to the internal managers. This is the vast information process which
comprises financial and non-financial information. However, there are various management
accounting system which can be used by the organisation to reduce all the extra costs from the
cost of production. Some of them are defined hereunder:
Inventory Management System: Inventory management is an essential part of a
management accounting through which a management of a company track, record and maintain
the inventory which is required to manufacture the product. Most of the organisation used this
system to meet out the customer needs and demands without wasting of a time.
1

The inventory management systems mostly used by the organisation to link the management
information system and maximize the productiveness of their running operations.
Importance of inventory management system in an organisation is: -
 Orders of inventory: - IMS help business of an organisation, by giving stock or inventory
order on a time which do not interrupt the production and sale process. Due to
digitalization, the organisation maintain all the records related to the inventory in the EDI
(Electronic Data Interchange), this system track, record the sales in the real-time format,
ordering automatically when the current stock available equals to the predefined
minimum stock level. EDI allows organisation to prepare the proper amount of inventory
by not maximizing the costs through above inventory or stock ordering.
 Inventory maintenance: - Inventory management systems allow companies to do accurate
or proper orders and maintain the records of different type of raw materials which is used
in making different type of products in computerised way. Most of an organisation used
inventory management system to retain units of stock separately from the similar
products. In this way management of an organisation determines that which units gives
up to the mark result and which units needs to be turn down from the stock due to poor
performance of sales in the market.
 Movement Analysis: - A primary function of the inventory management systems is the
movement or trend analysis that helps the managers to obtain the review for further
decisions. These movements are used to evaluate that in which months have a high or
maximize stock level or vice-versa. This analysis makes sure that organisation can take
place the order of the stock, if the stock management system does not reflect properly in
upcoming busy seasons in the market.
Job Costing System: It will help Ryanair Ltd in determining the all associated costs with
the product, which the company manufactured (Hilton and Platt, 2013). It helps to evaluate the
quality of work done by the labour. The duplication of the efforts will be preventing as the
similar work will be reflected in this system. A job costing system is used to assign the cost of
manufacturing to each unit of product while keep monitoring on the expenses. Ryanair Ltd can
use this system when the products are similar to keep track or monitor of expenses of an order.
Job costing system process consists of:
2

 Receiving inspection: The customer of a company is more concerned about the product
quality and price and also regarding about the time of completing the order which he
makes.
 Evaluate price of job: While keeping in the mind the customer tastes and preferences, the
accountant of the company prepare the job costing of the product.
 Receiving the orders: The order will place by the customer, if he is satisfied with the
price placed by the company.
 Costs record: Each and every cost which is related to the production process is recorded.
 Job completion: Once the job is completed, a report is given to the department of the
accounts where the accountant finalizes the costing of the job. This is done with the help
of estimated cost decided previously for the job.
Price optimization system: This is the system which is used by the management
accountant for optimising the price of the product. So that the price of the product can be adopted
by the most of the consumers due to the price lowering process. However, this can be said that
the price of the product is optimised after analysing the price of the contender’s products. This is
the most effective process which is used by the organisation in order to lower the products in an
effective manner.
P2 Methods used for diverse management accounting reporting
There are various management accounting reporting tools which helps the organisation to
maximize the goods in an effective manner. However, this can be said that the business
organisation can attain its pre-set objectives in an effective manner (Renz and Herman, 2016).
There are so many reports which are made by the concerned department which will ultimately
make certain decisions in an effective manner.
Budget report: This is the report which is made by using their budget in an effective
manner. However, this can be said that the budget is the most effective method which is used by
the organisation for gaining the sustainability and analyses their actual results with the
anticipated outcome and then react accordingly. This is used in many of the companies which are
keen to attain its pre-set objectives.
Performance reports: - Managers use the budgets to compare the actual performance
with the planned performance. The differences are analysed and calculated while making new
budgets and all information associated with these amounts is listed on a performance report. This
3

reports are calculated every end of the financial year. These reports are helped the managers of
an organisation to prepare plan for future demand in manufacturing or production of products.
Ryanair Ltd can also improve the inventory orders accuracy with the help of this system. The
integration in between the performance reports and Rynair activities will be helpful to the
managers to prepare the plan for the future and making the plan to reduce the cost and attain the
high profits.
Inventory and manufacturing reports: Ryanair Ltd In involved the integration between
the production processes and this report helps the management of inventory level in better way
and estimating the manufacturing cost when the required purchase level orders are to be placed.
It will help the company by improving the efficiency and effectiveness and also helps in saving
money and reduce wastage of time.
M1
As per the method of Ryanair airline, various management accounting systems are used
by the manager in order to control their routine financial conditions (Suomala and Lyly-
Yrjänäinen, 2012. This could render much effective data that can be used by the company to
make a strong decisions. There are various effective benefits which are mentioned here under:
For reducing costs: By taking help of an effective accounting systems, manager of the
cited company could manage their operations effectively. This would ultimately help out to
eliminate the wastage costs and make the decisions effectively.
For making future decisions: By relying on these accounting reports, company can
effectively make financial and non- financial decisions which can help out the managers to have
an crucial decisions regarding the attachment of their targeted goals.
D1
As per this, various management accounting tools are used by the organisation in order to
enhance the profitability of the business (Mistry, Sharma and Low, 2014). As both management
accounting system and reporting are ultimately helps the business to gain the sustainable
development. As both of these are ultimately help out the Rynair to gain the competitive
advantages. This also assists the business to monitor the business in an effective manner.
4

TASK 2
P3 Calculation of net profit by using various costing methods:
Rynair airlines are currently employing two methods for calculating the net profits which
arise from the operating activities. These are: Absorption costing and other one is Marginal
costing method. Which is used by the organisation in order to optimize the profits of the
company. With the help of these costing tools, company can use optimize the profits.
Marginal costing: This is the costing process which is used by the cost accountants for
considering all the variable costs and making the contribution effectively. Apart from that, all the
fixed costs are considered effectively. However, all the costs which are related to the production
of the goods are considered under this while making the net profits in an effective manner.
Absorption costing: This is the absorption costing technique under which all the costs
which are related to the manufacturing, considered while making the gross profits (Herzig and
et.al., 2012). Al the costs which are related to the manufacturing of the goods are considered.
Under this case, net profits as the marginal costing and absorption costing are considered
effectively.
Calculation of net profit by using various costing methods
Cost of Production (6*910) 5460
closing stock (10*6) 60
variable cost 5400
Contribution 3600
less:
variable sales overheads (600*1) 100
fixed overheads 300
400
NET INCOME AS PER MARGINAL COST 3200
NET INCOME AS PER ABSORPTION
COSTING:
Sales (10*900) 9000
5

less:
Cost of Production 5760
Gross Profit 3240
LESS:
Fixed and variable cost:
variable non-manufacturing overheads 100
NET INCOME AS PER ABSORPTION
COSTING: 3140
M2
This has been found that by considering an efficient accounting tools, this will help the
cited organisation to attain the optimum benefits to Rynair airlines. This will ultimately assist in
recording of the entry of each transaction into the financial statements. This will assist in
recording entry of each transaction into the financial statements. This will assist the managers to
estimate the existing situation for dealing with the each critical situations. Few of them are the
standard costing, historical and the marginal costing method.
D2
As per the above mentioned calculation, this can be said that the marginal and absorption
costing. This can be said that the organisation is implementing marginal costs which help the
organisation to gain the sound profits of 3200 while on the other hand, this can be said that the
absorption costing is used by the organisation to gain a net profits of 3140.
TASK 3
P4: Benefits and disadvantage of planning tools which would be useful in budgetary control:
Planning is the tool which is used by each organisation to gain the sustainability. For
producing an effective and efficient data they are required to form effective and reliable outcome
which are ultimately help out to make the decisions. Budget is the forecasting of the future
profits and expenses for a certain period of time (Bouten and Hoozée, 2013). However, this can
be rightly said that with the help for budgets, company can make certain predictions about the
money allocation in an effective manner. This is the inner technique which ultimately helps out
the control the entire risk which emerged from the organisation. The most crucial aspects which
6

are needed to have in each budgets. Such as: managing resources, communication of efficient
plan and centre managers and motivation of manager as per the attainment of the forecasted
targets.
Operating budget: In this budget, all the expenses related to the company’s operations
regarding manufacturing need to be consider here, while making the budget. This budget is used
by the company’s for attaining the pre-decided targets. The extracted outcome of this budget to
be considered by the company’s while doing analysis of actual budget with estimated budget and
accordingly make a new framework for a budget by eliminating the variances.
Advantages:
 By using this budgetary tool, the company would be capable to achieve their operations
related to objectives in an efficient manner.
 Helps the managers to overcome and control all the operating expenses, so that they
could enhance their operating profits (Callahan, Stetz and Brooks, 2011).
 This budget will help the company to evaluate the day to day performance activities and
support to find out the deviations.
Disadvantages:
 Operating budget does not always reflect a transparent image of the organisation.
 This is the time consuming process.

There are so many planning tools which are used in the budgetary controlling. Few of
them are explained hereunder:
Forecasting tools: This is the tools which assist the management of the organisation to
future forecasting on the basis of past and current data or trends. The more accurate tool of this is
to make internal and external operations of the cited organisation.
Advantages: The main benefit of the forecasting tool is that this estimates the future trends which
ultimately help out to make the decisions for future plans. By using this tool, company could
gain the sustainable development.
Disadvantages: This is not always possible to form reliable information for the future
trends.
Scenario tools: This is also the best tools which comprise internal and external factors of
the cited organisation in order to generate the best possible outcomes for the firm. This planning
7

tool is highly crucial for the making the plans for the longer term (Abrahamsson, Englund and
Gerdin, 2011).
Advantages: It will ultimately have efficient outcomes as this plan is formed before
occurrence of events. This also observes all the things which are related to the organisation.
Disadvantages: This does not make efficient forecasting tools for the future events. This
is done just because of the qualitative nature.
Contingency tools: This is rightly observed that this is known as an effective plan which
is made for sound outcomes than the normal plan. It is highly implemented for assessing risk
management while unconditional risk which influence the performance of a company.
Advantages: This is highly used for the aiming of comparing non-contingency budgets
tools. It does not have the plans for the uncertainties.
Disadvantages: This is difficult to form an early plan for managing the risk. However,
this is highly reliable and efficient process.
Particulars January February March Quarter
Cash sale (40%) 140000 146000 152000 438000
Credit sales from last
month (80%)
172800 168000 175200 516000
Credit sale from two
month ago (20%)
35400 43200 42000 120600
Total cash collected 348200 357200 369200 1074600
Add: GST @ 10% 34820 35720 36920 107460
Total amount 383020 392920 406120 1182060
M3
Keeping in mind the end goal to manage different basic circumstance, there are different
planning devices which are more useful for the organisation with a specific end goal to
accomplish future points and targets. Forecasting tools are useful for future estimating and
controlling every one of those hazard those are specifically influence the execution of Ryanair.
8

D3
With the utilisation of proper planning, an organization which need to achieve most
extreme development of an organization. There are different money related issues those are
influencing execution of an association which can influence the execution of Ryanair activities.
TASK 4
P5: Comparison of Ryanair with Easy Jet in accordance with financial issues
Several elements that are assisting for the purpose of setting the organisational
performance. For this, two similar companies of airlines i.e. EasyJet and Ryanair are operating
their business together. Here are mentioned the major issues:
 Profit level: It can be emerged cause of lack of proper administration of financial
operations. If organisations are not able to trade their services and products, it will
deprive them from gains.
 Productivity level: This is associated with financial stability and growth of enterprise.
Without the finance, company cannot meet maximum productivity level.
In order to deal with above mentioned issues, firm required to utilise numerous financial
techniques which are mentioned here:
 Key performances indicators (KPI): It is effective methods that can assist in operating
financial situation with comparing it with previous.
 Financial governance: It is linked with state regulations and rules which are determined
for smooth business operations.
Comparison
Ryanair Easy Jet
9

Company is facing huge expense issues that
firm can be solve through using the KPI
method.
EasyJet is rendering their services on wide
market or country parts. They can manage their
operations through effective operations control.
M4
As per the above report, numerous financial menace or issues has been identified which are
linked with several aspects like stock management and cost accounting. These can be
accomplished through using appropriate techniques and methods such as benchmarking, KPI and
financial governance etc.
CONCLUSION
From the above mentioned report, this can be rightly said that Rynair airlines use various
management accounting tools which could ultimately help out to make efficient decisions. In this
report, net profits are calculated by using absorption costing and marginal costing method. Apart
from that, various planning tools are used under this report for making budgetary control. The
financial problems are addressed out by using various management accounting tools such as KPI,
financial governance and others.
10