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Management Accounting of Airdri Limited

University: Regent College London

  • Unit No: 5
  • Level: Undergraduate/College
  • Pages 12 / Words 4000
  • Paper Type: Assignment
  • Course Code: H/508/0489
  • Downloads: 0
Answer :
Organization Selected : Airdri Limited

INTRODUCTION

Management accounting reports are prepared by managers and these emphasize preparing accurate reports of financial information for an efficient decision-making process (Meredith and Mantel, 2011). For Airdri Ltd, these are very essential from the point of view of determining performance and financial health.

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MAIN BODY

Information from these managerial reports is kept secret because of used only for internal operations. Preparation of these reports is not mandatory but it can give immense benefits if applied in the system.

The importance of managerial accounting reports in various areas is as:

  • Provide many choices for decision making
  • Helps in controlling cost for management
  • Price fixation and fair pricing can be done with these reports
  • Assessment and measurement of employee performance
  • Assists in financial planning process and in preparing quarterly budgets
  • Airdri limited will assure to accuracy through these management report and it only happen in case, estimates will be available on time.

Various methods of management accounting reporting applied to Airdri Ltd are as follows:

Inventory management reporting

Airdri Ltd needs to maintain inventory for production and manufacturing purpose so that process can be smoothly carried out. Process of inventory management begins with supervising purchases of stock items, work in progress and preparation of finished goods to supply of these goods to customers. Carrying cost of inventory can be reduced with the help of these reports. Accurate records of Airdri Ltd can be maintained and it leads to avoidance of problems of stock-out, access inventory. These are useful for every type of industry to maintain accurate balance of inventory.

Performance reporting

These reports are maintained by managers for convenience of Airdri Ltd in a way that analysis process becomes easy. Performance of employees and of Airdri Ltd are ascertained separately. Important decisions are taken on the basis of these performance reports for growth perspective. Also these reports provides right direction to employees who have problems in area of improving performance. Initially standards of performance are being set then it is compared with actual performance to find differences or variances. There may be favourable or unfavourable performance outcome will be there, appropriate action would required to be taken in case of unfavourable result. Performance reports are prepared periodically for correct results.

Accounts receivable reporting

With the help of this report, credit collection process of Airdri Ltd is ascertained (Beattie, 2014). This report shows separation of time taken by every debtor for their outstanding payment in table form so frequency can be analysed. Customers who are often taking goods on credit but not paying that on time, will be considered as defaulters and their list will be prepared so that their remaining balances can be recovered. Also restrictions and conditions will be put on credit collection policies of Airdri Ltd resulting in enhanced cash flow activities. It is becoming tradition of recording bad debts which should be reduced or eliminated in some cases. This is because extending higher rate of credit negatively affects profitability of Airdri Ltd.

Budget reporting

Budgets are useful for every organisation including Airdri Ltd from which expenses and revenues are mentioned. This acts as a tool for measuring performance according to size of organisation. For a small company, single budget is prepared due to less complexity but for a big organisation, budget is prepared for each department separately such as marketing, sales, human resource, finance etc. Characteristics of budget reporting is that these are made on the basis of available resources, past experiences, and future aspects. In the area of managing human resources, these assists in determining incentives and benefits to employees. Performance goals are being fixed for every employee and bonus is attached to their performance.

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Cost reporting

Cost reporting involves costing of every process involved in production of products to their delivery of Airdri Ltd. Production costs includes raw material cost, labour cost and overhead cost. Then total cost of production is divided among units produced to find per unit cost. Profit is ascertained by comparing cost from selling price of goods manufactured. Cost can be fixed or variable. Fixed costs does not change with the change in quantity but variable cost does.

M1 Management accounting system's benefits regarding organization prospective

It makes easier to achieve various result and motivate to employee indirectly for better performance (Collier, 2015). It increases bar of profitability regarding of capital budgeting and budgetary control and increases indirectly bars profit of Airdri limited and after that company able for reduce products pricing. With the help of this, simply making decisions in financial statement and company have freedom and flexibility. It's helping in future prediction from past results.

D1: Integration of management accounting systems and management accounting reporting

Both management accounting systems and management accounting reporting helps in controlling functions and performance of management. They set measurement criteria so that decision making contributes to growth of Airdri Ltd. Systems and reporting of management accounting includes job costing, inventory management etc. Data collected from budgeting and performance analysis are then later supposed to be useful in improving overall capabilities of Airdri Ltd. If you need cheap Law Assignment Help the UK from experts that can help you score good grades and impress your professor easily, then we are your one-stop-solution.

TASK 2

Cost using appropriate techniques of cost analysis to prepare an income statement

Marginal Costing

Marginal costing is basically defined as technique of costing where variable cost is charged to units of cost. It is characterised by valuation of stock, determining prices, profitability and is also depend on ups and downs in total cost in an additional unit of production. It is concerned with the price and quantity of product which is based on economies of scale. It assists managers for taking decisions for replacing of machines, discontinuing a use of product or service. It also makes an impact on the production level and on company's overall profit occurs.

Income statement as per marginal costing

Amount (£)

Sales value (35*600)

less:

21000

Cost of Production (6+5+2)

-9100

closing stock (100*13)

-1300

variable overheads

-7800

Contribution

13200

less:

variable sales overheads (600*1)

-600

fixed cost

-2000

Admin & selling cost (700+600)

-1300

-3900

Total

9300

Absorption Costing

Absorption costing is an oldest and widely using techniques of ascertaining costs. It is suitably based on direct cost with an addition of overhead costs. It is required for external purpose in financial reporting and for income tax reporting (Bedford, Malmi and Sandelin, 2016). This costing is often contrasted with variable or direct costing. It is a system that is used in valuing inventory items. This costing is required for preparing reports for financial and for the purpose of valuing stock.

Income statement as per absorption costing

Amount (£)

Sales value (35*600)

21000

less:

Cost of Production

9600

Gross Profit

11400

LESS:

Fixed and variable cost:

variable sales overheads (600*1)

600

Admin & selling cost (700+600)

1300

Less: over absorbed fixed production overheads

-100

-1800

Net profit

9600

Break-even point:

A Break-even point is a point that lies when two segments' total; cost and total revenue interact at a point where their is no loss or gain. In other words, it is a point at which total cost and revenue cost are equal. It is most probably used for financial analysis, managers, marketers, accountants etc. It plays relationships between sales, costs and profit. It makes a business more effective and for achieving higher results.

The margin of safety:

Margin of safety is basically distinguish in between actual sales and in break even sales which has an important part in any business because it helps to tell about reducing costs in revenue effecting on break even. It is also helpful in figuring out and show about a business safety in producing products. It is methodically calculated by a use of stock intrinsic value.

M2 Techniques of marginal costing and absorption costing for proper documentation

In each business organization, diverse accountancy framework are followed with the end goal to accomplish greatest gainfulness. This business of "Airdri" depends on an organization' exhibitions which is decided by utilizing right accounting method. In future finance arrangements, above classifying information are effectively utilized in order to accomplish future objectives. It is utilized to break down actual and standard cost adjusts. Methods for example, objectives sincerity and provide predictable input. Give consistent preparing and advancement to record administrators (Andreasen and Rosenberg, 2011).

D2 Report contains for interpretation of data

According to previously mentioned data, organization can utilize both of strategies that would give more applicable benefit. Since, in event that they are running with minimal costing they cause £9300 net benefit with 600 units of genuine deals. While on the off chance that they are running with assimilation costing they are getting £9600 of net benefits with similar units. Contrast of 300 units as net procuring is gathered from this examination (Socea, 2012).

TASK 3

P4 Planning tools for budgetary control

Budgetary control is a method of controlling costs which includes comparison between actual performance and budgeted performance establishing responsibilities and coordinating the departments, preparations of budgets and acting upon outcome to succeed maximum profitability. It refers to see that how manager will utilize budgets to control costs and monitor operations in a presented accounting period. In different words, budgetary control is a process of set performance goals and financial by managers with budget, analyze actual result and adjust performance. Now-a-days, organizations are becoming more advanced in planning strategies which has replaced from traditional budgeting towards cloud based software and tools. Online budgeting help to provide companies the way to manage budgets (What Are the Advantages and Disadvantages of Using a Static Budget. 2017). Types of planning tools for preparing applications and forecasting budgets are explained below:

SCORO 

This planning tool helping for combining several features of budgeting with another tools to manage integral company in one system and as a company whole providing an integral plan. While managing project budgets provide facility of manage available resources and various expenses with an organization. There are advantage of this tool is for Airdri limited -

  • Main advantage of this tool is planning and forecasting
  • Professional and invoicing service status
  • Evaluation of financial reports and analysis of budgeted targets

The disadvantage of these planning tools are for Airdri limited 

  • This planning tool not provide accurate information so Airdri limited will not be getting accurate information.
  • Getting too much data for analysis so data can not handle properly.

Prophix 

Prophix has been working as a software solution for companies to manage Budgetary control. It means that tools involves various smaller tool for planning budgets and managing to resources of the company. Advantages of this planning tool regarding Airdri limited -

  • Proper statutory, management reporting and financial reporting which making better decision and performance evaluation.
  • Profitability modeling and Optimization which objects for highly sustainability and profitability.
  • Cash flow will assist of accurate planning which complete liquidity aspects of an organization.

The disadvantage of Prophix regarding Airdri limited

  • There should be organizational hierarchies for forecasting and planning.
  • For member time perspective rolling 12 month should come standard.
  • There is Prophix consulting for sales product and customer that is tough to handle too much.

M3 Use of different planning tools for Airdri limited

Planning tools are instruments that guide Airdri limited for implementation of a program, initiative, and innervation. They provide descriptions of the county implementation plan and for development. Planning tools are helping for organizations like -

  • Organization timeliness
  • Things to do checklists
  • Action item checklists
  • Sample meeting agendas

D3 Planning tools which helps in handling financial issues

Every company faces various financial issues regarding their operations such as quality of products, unavailability of funds and many more. Airdri is a small scale organization which faces intense problem of unavailability of resources. Planning tools such as forecasting helps in handling this issue as they involve prediction of future events from which mangers of Airdri can ascertain their problem areas. Other planning tools such as contingency and scenario helps in helps in developing future range of possibilities and their prevention's by which a company can tackle problem of lack of materials and other resources.

TASK 4

P5: Comparison of organizations adopting management accounting systems

Organisations face challenges while operating business operations. This creates critical situations subject to manage the financial resources in organisation. There are type of financial issues such as decrease in revenue, increase in costs, and reducing customer satisfaction faced by Airdri. These issues can be resolved by following tools such as:

KPI

Key performance indicators are defined as developing business criteria and management terms. This plays a important role in business as this assist in resolving numerousIt enables to control, manage desired business results. It is a powerful tool for growth of business. It is a measurable process of an individuals and an entire company performance. Airdri can use KPI to overcome financial challenges by using metric which indicates how a team and business is performing for accomplishment of goals of organisation. It measures performance or organisation by department wise, identifying best ways to reduce costs and communication of crucial information.

Financial indicators

Mainly financial ratios of Airdri Ltd are covered under these indicators. Ratios are divided in four main categories namely liquidity, solvency, profitability and revenue. Liquidity ratios shows short-term liquidity position of Airdri Ltd including current ratio and quick ratio. Types of solvency ratios are working capital, accounts receivable, accounts payable, debt to equity ratio (Van Dooren and Bouckaertand Halligan, 2015). Category of profitability ratios consists of gross profit, net profit, selling and administration cost ratios. Revenue ratios includes sales and sales growth ratio. These ratios helps in solving financial problems of Airdri Ltd which includes rise in debts, lowered market share, stock prices issues etc. by keeping track of all expenses and evaluating ability of Airdri limited to achieve best outcomes.

Non-financial indicators

These comprises of management of human resources, quality of products and services, brand image or goodwill and company profile, all in respect to Airdri Ltd. Non-financial issues of Airdri limited may be unskilled personnel, low quality goods, delay in feedback to customers etc. which can be resolved by KPI through keeping regular check on quality, customer services.

Benchmarking

Benchmarking is a process of measuring a quality of organisations policies, products, programs, strategies etc. comparing with a standard organisation. In this business world, there are wide use of benchmarking tool within an organisation for comparing with other industries at market place. It occurs in all types of companies like private, public, non profit as well as other industries also such as manufacturing, technological, educational. It is adopted to analyse ability of Airdri limited to achieve objectives and higher performance goals. It may also help Airdri to to become more competitive and strong.

Airdri Ltd

J Sainbury PLC

Management accounting system of Job costing is adopted by this company and so that segregation of costs can be done according to different jobs or projects. And also profitability of each job can be ascertained. Focus of Airdri Ltd should be areas of higher revenues rather than lower income earning jobs which is a total waste of time and resources. Main focus is on optimum utilisation of available resources.

J Sainbury PLC is facilitating its retail operations in areas of selling of food, clothing beverages, general merchandise etc. so accounting system of price optimization will be used here to decide prices of various products. High pricing may lead to less sales and low pricing may lead to less profit so for Airdri Ltd, there is way to decide prices according to concept of price optimization in which level of competition, demand of goods and production costs are taken into consideration.

Cost reports in Airdri limited will be more useful for cost controlling. Goal of cost reporting system is that one can easily assess to costs incurred by various departments such as production, marketing, promotion, human resource, finance etc. In cost reports, production costs are also included which are classified as fixed and variable costs.

J Sainbury PLC is having many supermarket stores thus is also employing large number of employees and managers. Performance reports are prepared to satisfy employees as they will get benefits according to their efficiency. If there is any discrepancy found in performance area of any employee then it will be well detected for improvement.

KPI for any business goals and strategy will define at high level. There are financial as well as non-financial key performance indicators in Airdri Ltd. And these are given as follows:

This tool is mainly used by managers so that determination of effective practices in Airdri Ltd can be performed.

In J Sainbury PLC, benchmarking will prove an effective tool for comparing performance between peers. In modern time, this tool is gaining popularity due to its capabilities. Importance of benchmarking tool can be understood in a way that it smooths knowledge sharing process between organisations that can take advantage of competition and can discloses successful practices of companies.

M4: Assistance of management accounting in solving financial problems and leading to success

Financial problems such as limited funds, uneven cash flows can be solved in Airdri Ltd with the help of job costing in a way that it accumulates costs of all jobs or departments at one place. Considering J Sainbury PLC, where price optimization strategy is used for benefiting customers so that they have to pay reasonable prices for products. Key performance indicators in Airdri Ltd aid in growth from financial and non-financial point of view. These are useful for internal business environment as well as external business environment. While J Sainbury PLC employ benchmarking for supporting system. In retail industry, there are many competitors prevailing in market so bench marking adds to improves business practices of J Sainbury PLC.

CONCLUSION

From the above discussion, it can be concluded that management accounting is very essential in achieving sustainable growth. Later various management accounting systems are discussed in which contributes to ineffective management and solving financial problems. Management accounting methods such as job costing, inventory management, budgeting reports assists in analyzing overall performance, and eventually it contributes to inefficient decision making. On the other side, cost ascertaining techniques are used for the purpose of financial and tax reporting which is a very vital part of any organization. Comparison between different enterprises provided knowledge about solving financial problems and reach to success points.

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