Managerial Accounting and Cost Concepts - Air New Zealand - Assignment Example

Managerial Accounting and Cost Concepts Air New Zealand [Pick the Management Accounting Report - Air New Zealand Question FinanceManager Management accounting: Management accounting is all about assisting the management in devising organizational strategies. It includes aiding decision making of management and devising techniques to plan. Furthermore, it helps in providing competent skills to financial reporting and establishing performance management systems assisting the management in controlling the tasks and configuring strategies (Reyad, 2012). Management accounting is for assisting the management and work in coalition to it to carry out three main functions of planning, controlling and decision making. Management accounting is the demand of this 21st century. Management accounting is found to have deep rooted concerns in informing the managers about the key information of the external environment and internal control systems and updating them consistently to make informed business decisions. Therefore with this double edged information, the management accounting might be confused with that of the financial accounting. To mark a vivid difference between the two is drawing a line on the basis of focus on previous transactions and operations of the financial accounting; whereas, management accounting is focused on peeping into the future and foresees the future prospects and concerns (Reyad, 2012). Management accounting at Air New Zealand deals directly with handling of information that has never been released on the public platforms. Management accounting deals with handling of both operational and financial information. At Air New Zealand management accounting is concerned in the planning processes as it is solely responsible for providing accurate, consistent and up to date information of the external environment and synchronizing it to the internal one to help in adequate planning by the management. All these bulk of information helps in strategic planning at Air New Zealand. Management accounting also encircles around tracking of new information and changes and then providing this new information to those who use this valuable input into planning processes. Management accountant is responsible for dealing with the forecasting processes as well as the business costs reviewing etc and making correct assessments that are being moved to the management department directly for planning. Management accounting involves dealing with more important and concrete parts of business (Frezatti et al, 2011). Management accounting is also concerned with keeping updated records of all the key information and specific issues at Air New Zealand. As the firm is a gigantic one therefore management accounting is well acclaimed here in the management, storage and recovery of top quality records, which is the responsibility of management accountant. Without the management of records, the specific issues that may arise in the organization cannot be dealt with and the control will be reduced which leads to a disaster. Management accountants are solely responsible for generating reports of key records summaries at Air New Zealand. This leads to ease f access in tracking the essence of information by the internal managers. Management accountant is directly involved in controlling activities here. As bulk of information has been handled here therefore there lies a greater probability of noticing any potential drawbacks into the records by the management accountant first, he is liable to directly report that to the internal manager and control the flow of processes this way. Management accounting also contributes to decision making at Air New Zealand. The management team is concerned with getting hold of ample internal information for decision making which is directly fed by the management accountant. This internal information is specific for the organization as it is directly associated to the needs of organization. The information therefore must be selective to meet the specific needs of Air New Zealand. If any failure occurs the burden goes to the accounting information provided by the management accountant therefore the information must be made selective and accurate meeting the specific needs as it is directly involved in strategic decision making. Question # 2: Chief Financial Officer Chief Financial Officer at Air New Zealand: Mr. Rob McDonald the CFO at Air New Zealand has a finance background and has been contributing well in handling the company’s financial department. He had been working as the Group Financial Department Manager and then treasury Manager at Air New Zealand. Through expertise, knowledge and competence he has gained insight to what skill sets are required of the management accountants (Air New Zealand group executive, 2013). Role and responsibilities of a management accountant: As with the passage of time and dynamic changes in environment, a management accountant needs reconsider his skill set and adding a strategic and value adding end to his role. This must include the consideration of risk and risk causing factors associated to it. As management is concerned in dealing with all the issues including risk management therefore management accountants must be shaped well in accordance to following those marginalized risk frameworks. Management accountant can be from CIMA members and they go up well to the Finance Director positions as well, if they correspond well to their surroundings and act justifiably in carrying out their roles. Moreover they need to be educated enough to actually become accountable to that position (Collier and CIMA, 2008). A management account must have a background strong enough to have extensive training professionally regarding information and systems analysis, strategic and performance management and managing internal control systems and implementing frameworks within their organizations. Through continuous researches in management so far, a number of significant implications concerning the role of management accountants have been delineated. The line managers are concerned with identifying, analyzing, reporting and assessing management issues and supporting and assisting the finance directors and management in controlling and monitoring various diversifying tasks. The management accountants’ role is consistently heading towards a broader extent for their positive contributions in risk management and supporting wider views of management control. Management accountants must be assessed to competitively screen the vital information within the related industry and sector. These managers must be assessed well on these parameters before assigning them with such serious and intense responsibilities. Relying on formal accounting based controls only calls for a serious debate. Management accountants are differentiated from non management accountants on the basis of understanding of formal control systems within their organizations as well as the sustainability of professional knowledge to understanding and identifying the limitations of accounting information. Moreover major overwhelming organizations such as the aviation of Air New Zealand rely heavily on the indulging and support of management accountants with their distinct contributions to risk and control management. Management accountants must retain a skill set enriched with analytic and modelling skills and must contribute significantly to the supporting role in assisting management staff. Lastly management accountants must be task oriented and their basic job is to assist in controlling mechanisms with that of the management and devising organizational strategies (Collier and CIMA, 2008). Question # 3: Board of directors The Board of directors at Air New Zealand has high concerns for creating value through the implementation of adequate rules, regulations, and ethical standards, code of conduct, policies, practices and processes. Ethical Standards: Air New Zealand has higher expectation of its directors and other work force employees to show maximum synchronization to the ethical standards laid out for them, the governing policies and guiding principles and performing in unison as legally, ethically and socially with that of the company’s integrity and consistency in following those outlined policies (France, 2011). Following vital components constitute the framework of ethical standards described next: Business Conduct Guide: The group has developed this Guide to business conduct that contains legal and ethical standards that must be followed and reassuring that the personnel will act and perform in a manner that will be in coalition to the Air New Zealand’s policies (hunn, 2006). Open Communication Culture: The culture adopted by the employees at Air New Zealand is simple open communication that enables the staff to communicate its suggestions, recommendations, correction and independently delivers its concerns. Avoid Conflict of Interests: This clause has been updated as per the policy with the rights retained by the director to maintain an environment of integrity while making decisions and provide advisory facilities to the board if any potential conflict of interest arises (hunn, 2006). Air New Zealand’s Securities Trading Policies: There is a binding and limitation deployed over the Board and Directors to sell the shares of Air New Zealand and this is secured and governed by the Air New Zealand’s Securities Trading Policies. Many other listing rules as ASX and NZSX and Securities Markets Act (1988) are also taken into account. Rewards and Inducements: The third parties consistently offer gifts, incentives, entertainments, rewards and inducements etc to the staff that are managed and governed by the gifts and inducements policies at Air New Zealand. Donations: Huge donations are granted by Air New Zealand annually that comprise of a total of $1098262 that includes Relief Funds for earth quake and other natural disaster’s effectees, supporting charities and foundation such as “Make a Wish Foundation”, kids restorations programs, arts and education programs and Environmental Trust etc. None of the donation is given to lure the political parties at all. Registering of Interests: An interest register is maintained that records all the transactions involving the directors and Board for accountability under the Companies Act 1993. Social Responsibility: Concerns for Environment and Sustainability: Air New Zealand actively seek all possible measures to keep the environment green and clean and safeguard it as a socially responsible company around the world. Carbon Offset Program: Air New Zealand has developed a Carbon Offset Program and expects its customers to contribute to this program to secure the environment as these contributions are utilized in purchasing Trust Power wind farms. Air New Zealand Environment Trust: Customers are also given the flexibility of making contribution to this environment trust program that enables the company to maintain a green, safe and clean environment and enhance its reputation and image of New Zealand across the globe. Reforestation Conservation Project: The first most conservation project was implemented at Mangarara Station aimed directly at reforestation and countrified planting of trees. Moreover holistic approaches to soil management were also a valuable part of this project. Historic Hawk Bay’s project of farming is accessed by the public since 2010 (Air New Zealand, 2013). The company continues to perform for environment sustainability and seeking constant environmental performance. Question # 4: Management Accounting Team “Different costs for different purposes” consider this statement and provide 15 different examples of cost classifications and supporting examples from our company’s operations. Air New Zealand is a huge aviation organization that incurs different costs classifications for different purposes. Following are some of the main cost classifications examples that are being frequently used at Air New Zealand: 1. Direct Costs Direct Costs are actually all those costs that are directly assigned to a product that broadly includes direct material and direct labour. 2. Direct (Marginal) Costing Direct costing is a simple and fixed method which is used to assign variable factory overhead costs and prime costs (explained ext) to the products or inventory. 3. Period Costs All the fixed costs that are not outcome based are called period costs. Period costs are charged at the end of a specified period that is usually the current period. 4. Product Costs Product costs are the costs that are directly applied to the production of goods. Variable costs including those of Direct Materials, Direct Labour and Variable FOH are some of the typical product costs 5. Direct materials cost: It includes the cost of materials that are being purchased for a reasonable cost. This includes the inventory, logistics, parts, equipments etc in Air NZ. 6. Direct labour costs: It includes the payment made to the labour and other workforce in converting the raw materials into something materialistic and functional. For example this includes the loose parts from different companies and assembling into gigantic parts of aircrafts at Air New Zealand by the engineers. 7. Manufacturing overhead: This accounts for all those costs that are apart from the DL and DM costs. For example the cost of an engineer’s time at Air New Zealand, the cost of deprecation etc 8. Marginal (Direct Costing) Marginal costing is a costing procedure that is used by the Air New Zealand in which only variable manufacturing (as described next) costs are charged to the products which is related to the output only. 9. Absorption Costing Absorption costing is a costing procedure which assigns Direct Materials, Direct Labour and a share of both fixed and variable FOH to units of production. 10. Fixed Costs Fixed costs are those business costs that are incurred whether the business s at a stagnant, growth or maturity stage. It means whether the business is in operational form or not, the fixed costs are to be incurred. For example in case of Air New Zealand, fixed costs can be the costs incurred by the staff and engineers in times of bad weather. The flights may be cancelled but the other staff has to be there for their respective functions and costs are incurred. 11. Variable Costs: Variable costs are those costs which vary directly with the level of output. In case of Air New Zealand the variable cost may be for the fuel as for londer routes more fuel and other resources are consumed. 12. Job Order Costing The costing system is a simplest type of costing technique that defines costs of each job that is the cost required to complete every single task and all the different tasks along with costs are accumulated at the end. Here each job is a single separate unit. 13. Batch Costing Batch costing is more generic as compared to job order costing. Similar jobs are grouped together under one batch and each batch has assigned a particular cost and at the end all the batches are summed up to give the total cost. This accounts for the different grades and levels made at the Air New Zealand Company ( Hilton, 2006). 14. Process costing: It is the procedure through which manufacturing costs are allocated to the goods having comparatively same nature to measure the average cost per unit of the product. Air New Zealand, being a mass producer of a range of similar products including parts of aircrafts and other equipments, uses this technique. Due to the similarity of production units, each unit consumes almost equal input, hence, making the use of process costing rather easy and efficient. 15. Prime Cost: Prime costs is actually the sum of all the costs coming under the shed of product costs including DL, DM and MOH and any other related costs. References France, R. (2011, August). Air newzealand Annual Financial report of 2011. NZX. Retrieved from https://www.nzx.com/files/attachments/144759.pdf Hunn, D. (2006). NZ On Air Annual Report 2005/06. NZ On Air | Home. Retrieved from http://www.nzonair.govt.nz/media/7235/ar_06.pdf Air New Zealand group executive (2013). Executive - About Air New Zealand - Company Information - Air New Zealand - United States Site. Cheap Flights, Discount Airfares, Deals & Vacations - Air New Zealand - Official Site - United States Site. Retrieved from http://www.airnewzealand.com/executive Air New Zealand (2013). Environment & Sustainability - About Air New Zealand - Air New Zealand - United States Site. Cheap Flights, Discount Airfares, Deals & Vacations - Air New Zealand - Official Site - United States Site. Retrieved from http://www.airnewzealand.com/environment Reyad, S. M. R. (2012). Accounting Conservatism and Auditing Quality: an Applied Study On Egyptian Corporations. European Journal of Business and Management, 4(21), 108-116. Collier, P. M., Agyei-Ampomah, S., & Chartered Institute of Management Accountants. (2008). Management accounting--risk and control strategy. Oxford: CIMA. Frezatti, F., Aguiar, A. B., Guerreiro, R., & Gouvea, M. A. (2011). Does management accounting play role in planning process?. Journal of Business Research, 64(3), 242-249. Hilton, R. W. (2006). Managerial Accounting: Creating Value In A Dynamic Business Environment. Read More