Management Accounting: Analysis of Amana Ltd's Performance and Decision to Go Online

This report discusses the budget of Amana Ltd and analyzes its performance. It also provides recommendations to improve its performance. Additionally, it analyzes the decision of Amana Ltd to go online and provides suggestions on whether to start its online business and sell on Amazon.

ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
The monthly control report of Amana Ltd.............................................................................3
Analysis the result of Amana's performance..........................................................................5
Recommendation to improve the Amana's performance ......................................................6
Detailed analysis of Mr. Amana's company decision for going online and give suggestion
whether he wants to start its online business and by including all cost wants to sell on
Amazon. ................................................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Management accounting is a new concept of accounting. The term of Management Accounting is
divided into the two term such as management and accounting. It refers to accounting to the
management. It is a model tool and techniques to management. It provides the techniques for
interpretation of accounting data. Accounting serves the need of management because it helps to
taking decision. So the rule of management accounting is to facilitate the process of decision
making by the top level management. All types of managers in the organisations need
information about the business activities to plan for the future activities (Aggarwal and Garg,
2022). In this report, to discuss about the case study of Amana Ltd that is given in the brief and
prepare the budget of Amana Ltd. Further this report analysis the decision of Amana Ltd if they
should set up their own business or to go online.
MAIN BODY
Question 1
The monthly control report of Amana Ltd
Budget is a statement of income and expenditure of a certain period. A budget is a
financial or quantitive statement, prepared prior to a defined period of time, of the policy to be
pursed during that period for the purpose of attaining a given objectives. It must be expressed
either in quantitative form. It must be prepared before the time for which it is required. It should
be prepared for a definite period. It should be prepared in according to the business objectives. It
is prepared normally to attaining enterprise objectives because policies are prepared to achieve
the objectives. It is useful for forecasting the operating activities and financial position of a
business enterprise. Budgets are helpful in establishing divisional and departmental
responsibilities (Boyle, Boyle, and Hermanson 2020). Budgets are means of communication.
The complex plans that are laid down by the top management are to be passed on to the operative
personnel, those who actually put the plans into action. Budgets are very much helpful in
processing such information to the lowest personnel in the organisation. It is devised to obtain
more economical use of capital and all other inputs. It is more definite assurance of earning of
the proper return on capital invested.
Flexible Budget : It is the budget which is prepared to modify the differences in actual income
terms. It is a budget of predicted income and expenditure which is make in estimated activity

horizontal and permit to change as alteration in the activity level. It is not a fixed budget so
manager can change the state level and cost departments can prepare variance analysis which is
founded on the flexible budget. It also furnishes in to provide fair and transparent information
(Braun and et al., 2020)
Variances in budget : It is an financial term which measures the difference between actual and
budgeted cost due to higher or lower cost. It also have two effects favourable or unfavourable.
Favourable or positive budget variance means company revenue is higher than cost on the other
hand unfavourable budget variance means cost is more than expenses which is shortfall.
Variances may happen due to internal and external errors like changes in business environment,
human mistake and poor demands. The main use of budget variance is that it indicates that
budget can not meets its objective in future. The one task of mitigate the variance analysis is to
prepare a flexible budget tool. If budget variances is unmanageable than it becomes more
challenging to handle the situation. It is because of its changes in customer tastes and
preferences. Then it means to further estimation of future budget in to live action.
These are the below steps which helps the interpreter to evaluate the budget control document of
this company :
1. Check the expenses : The prime objective of monetary budgetary control technique is to
keep a track of several kinds of expenditure which can occur throughout the business life
cycle. Organisation prepared the production budget on every month to analyse how much

cost is company incurring for manufacturing a product. Company make financial
statements in every financial year to calculate all the expenses company incurs in a
product such as manufacturing cost, production cost, office and administration cost,
selling and distribution cost etc. Company find out the ways to save the cost in any area.
This budget helps in optimum utilisation of resources effectively and efficiently.
Company can suffer huge impact on profit on immense spending of expenses on product
and customer may not be prefer to buy this due to high cost of the product
(Grammatikopoulou, and Vačkářová 2021).
2. Determine the excess expenditure areas : Company go in detailed investigation of the
budget written report to find out the areas where organisation is incurring vast cost and
measure the effective alternatives to find out the decisions.
3. Point out the areas of spare money expenditure : In this method the management of
company identify the domain where company has spend less money as compared to those
areas where entity is spending huge portion of the budget. Therefore this minimum
amounts also taken in to considerations.
Analysis the result of Amana's performance
 Flexible budget is the difference between sales and actual budget. This shows that the
organisation has to increase its sale of units of product while rising the selling price. This
will aids the enterprise to generate more revenue for the annual year. In the given
question the sales price is GBP 25 and total units sold is 100000 in the original budget.
The amount of both the prices is more than the predicted budget. The performance of the
entity has suffered due to high difference of the amount.
 The material cost variance and labour variance expense is very high. In the actual budget,
the price is 10% selling cost of per unit of the product. The effective cost is GBP 28000
that is more than 10%. So it is essential for company to reduce the price of raw materials
that helps to control the expenses (Guan, and et al., 2019)
 It has been observed in flexible budget per unit cost of labour also fall down along the
base of number of units produced. This helps in flexible budget to control the price of
direct labour.

 The net and gross income of the company is less as compared to its actual budget that is
55.29%. It is mandatory for the company there is proper management of all the expenses
and income from the initial stage.
 The net profit of the company is short fall by 66.30% in against with the budgeted data.
There should be sincere plan of reducing the fixed or static expenses. Otherwise it will impact
the financial budget of the enterprise and business will face the fall down in income and this
devastating plan will obstruct the growth of the Amana Ltd.
 The stringent expenses includes factory rent, wages and salaries of staffs, security, salary
of gatekeeper, supervisor wages. The organisation should have to maintain full power on
the business finances. Checking the budget is not an one time action plan the forecaster
has to monitor the expenses at each point. The planner has to estimate the deviations
between actual and preset payment (Hoque, 2018). Company have to alter the budget
according to changes in business and economic environment. If your expenses surpasses
from the income than company has to decrease the expense to cope up with the deficit
situation.
Recommendation to improve the Amana's performance
There are some ways through which enterprise can improve the performance on the foundation
of report:
 The primary motive of any organisation is to increase the sales which will increase the
profits of the company. For implementing this the company have to focus on the
expanding the production units of product will simultaneously increases the revenue of
the organisation. After evaluating the cost the company can rise the price of the
commodity but this is the critical step and entity keep always in mind that price should be
reasonable.
 Company have to control excess of every direct or indirect cost which is incurred in
commodity. It should be focused on how the cost of raw material estimated expenses is
higher than the actual budgeted cost. This refers that company is wasting the resources
and the money are ideal here. The manager should prepare the effective planning of using
the expenses. The manager have to take proper action and impose strict penalty for any
wastage of resources (Kwarteng, and Aveh 2018).

 The wage cost must be set by the organisation management because company can reduce
this expense by increasing the number of quantities of product and the capacity of labour
doing the work. Through this way organisation can apportion the money.
 Budget can be surplus or deficit and surplus budget is best for the organisation because
company has managed its cost by increasing the sales of the goods.
Question 2
Detailed analysis of Mr. Amana's company decision for going online and give suggestion
whether he wants to start its online business and by including all cost wants to sell on
Amazon.
In this big foreign country like UK, Europe the competitors of Mr. Amana's business is rising in
this country (Wahyuni-TD, Haron, and Fernando, 2021) . It has the opportunity for the company
to change its commercial business in to digital and the two stores of business going digital are :
 The company have to segregate the departments of London, Manchester and Brighton by
increasing the sales of the company 50% online. According to this fixed cost will definitely
includes like reimbursement of covering the conveyance web, income of IT codes and the use of
company websites. Beyond this organisation is earning 100000 units of earnings yearly. The
total cost of the Mr Amana company budget is :
Total expenses incurred in build up transportation web = £ 150,000
Total cost incurred of set up of real web design to increase the bulk of sales = £ 50,000
Salary of full employed IT officer = £ 35000 per annum
Full Expenses = 150000+ 50000+ 35000 = £ 235,000
 By calculating this, it is the opportunity to the company manager can increase its
profit by selling the commodity online on Amazon and get the satisfaction from
fees. It gives to relief to organisation by selling 65000 units annually and can bounce
the demand for the products. Total cost will incurred in this:
Total Amazon expenditure =£ 50000
Therefore the entity has to spend more expenses for setting their private digital platform which
comprises of huge difference that is £ 185000.
Amazon is reputed and huge platform for online customers. This company has massive
client base. It is the most beneficial platform to commerce on amazon for receiving the money in

private websites. The enterprise has to pay immense costs for set up an website in a period of
time (Leoni, and et al., 2021).
Lets discuss the difference between two alternatives in detail.
Basis Amazon Setting up the online store
Concept Amazon has a very wide
customer base. It enacts alone
close to 40 % of the yearly
revenue.
It takes huge amount of time to
reach the consumers in case the
least revenue units are assured.
Management It will negotiate the fixing and
the moving of the web site.
The sellers on the website are
not required to manage the
website . They are just asked
to pay the costs related to it.
This comes under the
observance of the owner to
maintain and update the
website and the merchandise
available in a proper manner.
As even the necessary costs
will be taken care by the owner
of the business only.
Owned The cost related issues of the
commodity and design related
issues of the website are not
concerned with the sellers on
the Amazon (Madsen, P.E.,
2020)
The owner of the businesses
have entire power related to
page designing, signing in and
out and cutting of the products
that are not working well. They
can carry off their individual
choices o their own.
The above variations in statement is concluded this :
 It is measured from above analysis that setting up own web design will point out more
cost rather than by doing business on Amazon. Therefore company have to invest in
Amazon it is fruitful for the enterprise to save its expenses in this terms.

 By doing business in this platform the revenue from the sale of the merchandise goods is
more secured in the self internet website by 35000 units in against with amazon. This will
conclude that Mr. Amana's website will provide more profits than Amazon (Petratos, and
Faccia, 2019).
 On amazon platform the enterprise can't concentrates on the quality of the goods on the
other hand company can sustain this by creating his digital business.
 The burden of proper managing the internet site will borne by the administration of
amazon, if organisation wants to sale on amazon quickly.
Therefore, from the above discussion it is recommended that Mr. Amana has to settle his self
online business because at the end of the year revenue of company is visible. By developing its
own website it can increase its sales and can earn more revenue (,Sui, Sun, and Geyfman, 2021).
CONCLUSION
From the above analysis it is concluded that company can't depend on the estimated
values of several kinds of revenues. Budget only gives the concise view of the budget
expenditure and income. It is not accurate statements so company can't relay on it. Company has
evaluate the performance by preparing the flexible budget, variance analysis at the end of
month. The prime target of this document is to calculate the difference between actual and
budgeted results. It denotes all the areas where company has to concentrate on focal point. The
company has increased its units of product to cut down the cost by best utilisation of materials.
As company know that profit is good for financial performance of the company. Company has
evaluate the cost of setting his online business or have to sell the commodity on Amazon. The
decision of starting its own digital business is right because it is secured for payment transactions
instead of opening its shop on Amazon. Through this method enterprise can expand and diversify
its businesses to gain advantages in the long run.

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