Selling through Amazon vs Developing own online store: Amana's decision

The significance of budgets in business growth, control report on Amana's performance, and advice on whether to sell through Amazon or develop its own online store.

ACCOUNTING
Table of Contents

INTRODUCTION.......................................................................................................................3
TASK........................................................................................................................................3
PART A....................................................................................................................................3
(ii) Develop report on ascertained performance of Amana’s during the 2020 year............................5
(iii) Give suggestions and recommendations to Amana’s CEO for specific areas that demand
improvement.....................................................................................................................................7
PART B.....................................................................................................................................8
Provide related examination of Mr. Amana’s decision for switching towards online grounds and
provide related advice whether they must set up their own online shop or sell through Amazon.
Also consider related and relevant costs incurred during process......................................................8
CONCLUSION.........................................................................................................................11
REFERENCES..........................................................................................................................12

INTRODUCTION
The report prepared below explains the significance and essence of preparation of budgets &
how to contribute in growth as well as expansion of business in competitive environment. The
budgets are useful in every area whether it is a small firm, large enterprise, a sole proprietor or
partnership contract-based projects. The budgets are helpful for serving as a tool and providing
related assistance for future courses of action that would help business to minimize costs and
risks. The report takes in account controlling and monitoring of funds reserved by Amana Ltd.
for a specific point of time (Aerts, 1994). It states various methods that would help in preparation
of budgets for example flexible budgets, original budgets and serves as a medium in calculation
of variances as well. Variance helps to compute the difference present in case of estimated
expenses and actual costs. It has been observed that pandemic has affected related economy and
smooth running of companies in market which is the main reason behind assessment of
conditions and situations.
TASK
PART A
(i) Prepare monthly control report that reflects preparation of flexed and original budgets and
computation of variances.
Variance of the budget: It can be explained as a tool which is helpful for respective persons,
government authorities and corporate parties. It is useful for finding the difference evident in
case of actual amount and the estimated quantity. The variance can be defined as deviation that
can be used for predicting whether the actual expenses is lower or higher than estimated costs.
There can be various reasons behind the presence of variance for example change in economic
situations, business surroundings, poor results, errors made by human. There can be two
circumstances such as favourable or unfavourable budgets. A favourable budget can be
explained when the costs are less as compared to expected expenses. The unfavourable variance
defines occurrence of higher expenses than what is expected cost in a budget (Arrington and
Puxty, 1991).

Monthly control report: It can be described as a report that considers the important
information and data taking in account fluctuations in costs, utilities, payroll and overhead
expenses as well. It is compulsory for every company to recognise areas that require spending
and investment of funds which would help to understand pattern adopted by them during the life
cycle of business. In every type of organisation, the budgets are being planned and carried out by
superiors, executives and top-level managers. The monthly control report can be used to examine
working expense or operating costs of an enterprise. It also serves as a guide and provide
suggestions that would contribute in recognizing areas that demand increase or decrease of
investment or funds. It also helps to find areas which generate more unwanted costs that can be
minimized well in time by implementing preventive measures (Brock, Hinings and Powell,
2012).
 Flexed Budget: It is transparent and clear from the above keywords that it is helpful
in keeping updated data which would ignore errors and mistakes while preparation
of budgets. Such budgets are helpful when business is recording enough alterations
in company. It is valuable in comparison of actual consequences with budgeted
accounts. It is counted as a helpful tool that is fixed in nature and might result in
preparation of flexed budgets.
 Original budget: Such budgets are developed and prepared with proper considerate
of information collected previously. The budget is framed and costs are dignified
with the help of proofs collected and put at one place from last year’s information.
It also assists in calculation of net revenue earned by a firm.

(ii) Develop report on ascertained performance of Amana’s during the 2020 year.
The functioning of Amana has been estimated with the help of above asserted control
report.
There are certain steps that must be followed. The reasoning behind such steps is stated as
under:
 Discovering the expenses: Every firm has costs assigned for certain tasks and
reasons such as production, manufacturing and selling of goods & services. There
are respective charges such as job order expenses, process costing which is useful
for computation of expenditures that related to every task taken out during
production lifecycle. The inspection of each product cost separately is beneficial in
limiting prices that would help to cover expenses (d’Arcy, 2001)
 Identifying areas which incur excessive expenditures: There are various factors
related to expenses such as direct expenditures, cost incurred in purchase of
materials, cost associated with labour. The cost audit in business helps in
confirmation of accounts for keeping an eye on cost related to firm. It further
verifies the strategy, idea, process and principles that must be adopted by cost

accountant for analysis of expense. It helps to take efficient and effective steps that
would help to control unnecessary costs of business.
 Parts where extra money is used: From the above asserted and concluded report,
various areas are examined. The estimation is done with the help of different kind
of budgets. With the help of same, different categories where money is spent
unnecessarily is taken in account.
 The amount of labour and raw material is more than the prepared actual budgets.
However, in instance of primary budget it is appreciated at 10% cost per unit. But
whereas in real it’s worth is 280000 which is approximately more than 10% that the
company would emphasis on minimizing the estimation of raw materials that
decrease the value of raw material that reduce overall balancing of the organisation.
 The shifting of real budget is more than the developed flexed budget. It must
include emphasis on progress of company and lessen the expenses related to firm. It
will also find ways that would help and assist in generating more revenue in
business. In relation with primary budgets, 100000 units are being marketed and
sold at an assessment of 25 but in case of real budgets the quantity being sold and
expenses related to selling is very less. The influence of reduced selling rate would
demonstrate to be non-profitable for the company (Funnel, 1998)
.
 The net profit of business resulted to fall by a percentage of 660.30%. Therefore,
the company should focus on reducing variable and fixed related expenses in
relation towards the corporate. The financial health of organisation can also be
improved and profitability of business can be raised with the assistance of specific
recommendations given to Amana Ltd.
 When compared to primary budgets, the revenue generated by enterprise is lesser.
It fell by a percent of 55.29%. The gross worth reflects the revenue and activity
related expense of company. Hence it is recommended that expenditures and value
that are related with variables should be controlled in adequate manner.
 There are many fixed costs that the firm cannot ignore. Costs which are related to
employees, rent of house, insurance of fixed assets, salary of executives and

supervisors as well. Fixed expenses set by firm is lesser when comparison is made
with actual budgets.
(iii) Give suggestions and recommendations to Amana’s CEO for specific areas that demand
improvement.
There are several suggestions that can be given to Amana Ltd. The brief description is stated
as under:
 In every company there is a issue observed that is related to limited availability of
resources and finding better alternatives to be chosen for placing them in best direction
possible.
 For increasing the earning capacity of business, it must concentrate on improving the
production level of firm. The increased level of production would assist organisation in
reaching economies of scale which counts cost related to level of productivity. It thus
would be helpful in maintaining the level of production in enterprise (Ijiri and Jaedicke,
1966).

PART B
Provide related examination of Mr. Amana’s decision for switching towards online grounds and
provide related advice whether they must set up their own online shop or sell through
Amazon. Also consider related and relevant costs incurred during process.
There are several suggestions that can be given to Amana Ltd. The brief explanation is
given as under:
It is clear that the company and working of Amana is increasing its functioning in
various countries such as Europe, UK, US. It is also evident that the company is
focusing on taking its business and work on online platforms but it is observed that
she is confused among two related situations that must be assessed before taking any
decision. They are described as under:
 First option that is available with Amana states the development and
launching of its own website after shutting down its related parts of business
covering different countries such as Brighton, Birmingham and Manchester,
the profit earned from online sites is seen to be 50%. There are different
expenses that are associated with such methods that are of fixed nature such
as salary that is paid to respective person hired for programming, delivery
expenses charged at the time of selling of products, cost that is linked with
upgradation cost associated with the website being operated. Further
additional benefits that are being provided is an assurance of sales on annual
grounds for 100000 components. Therefore, the total expense stimulating for
it is specified as under which must be enclosed by Mr. Amana:
Cost for setting up delivery network: = £1,50,000
Salary given to a full time IT programmer = £35,000
Expense for upgrading of existing website for management of large scale of
sales = £50,000
Total cost incurred = 150000 + 35000 + 50000 = £ 2,35,000
Thus, it can be asserted that development of an online website is more costly
when compared to additional options and a huge variation of £ 1,85,000 is
being taken in account. It is obvious as Amazon is a well reputed name and

has a competitive brand appearance in environment and is also known for
giving best usefulness towards the goods being delivered.
 The second option that is there with Amana is to pay dues for achieving its
expected and set up sales with tying its company with online websites such as
Amazon. It would help the organisation to make guaranteed sale of 65000
units annually and it might be possible that the need and demand might vary.
The total expense which can be linked in such cases is:
Costs acquired with Amazon site: £ 50,000
Thus, it can be determined that setting up an online base is more costly when made a
comparison with other available options as alternative and has a huge variation prevailing of £
1,85,000 is being recorded. It is clear as Amazon is well known and reputed name in market area
for giving and ascertaining better values towards the ordered goods (Mohamed,and Lashine,
2003).
Therefore, it would be a fruitful situation for company to select business functioning and
running over online platform. Consumer ground covered by firm is large and has served loyalty
from their sides as well. It would prove to be a better option in future related circumstances as it
has less expenses engaged and gives more revenues in return. Further, with the help of
evaluation its conclusion on which company reaches is that it cuts down cost and unwanted
expenses as well.
Detailed variances for developing an online store and carrying out sale related operating
through Amazon are stated as under:
Basis Developing online
website/Store
Amazon
Reach It would be more challenging
for a firm to develop a
customer base and increase its
reach for related time period.
It would increase more costs
as compared to Amazon.
It would be easier to reach a
large customer base as it is a
well-known brand in market at
present point of time. Sales in
such situations would take less
time as compared to
developing or launching its
own new site.

Data The information would be
collected on first primary base
and it would consume a lot of
time. It is not necessary that
the information that is being
collected and sorted would be
useful or would include only
potential buyers as well.
The data available with
Amazon would be more
reliable, accurate and relevant
as they have a thorough
knowledge of linked and
engaged customers from
market. It considers potential
and real buyers which would
be fully satisfied with the
products being served and
would suggest innovative idea
for growth and expansion of
work in due time as well.
Costing If the decision for taking out
its related operations and
selling on its own website is
chosen then the company
would be needing a lot of
investment in initial stages
which would be more costly
as compared to other available
option.
If the company has limited
resources and funds available
for investment then it must
choose Amazon as a medium
for generating sales in market
for the time being. As it would
serve as a better option than
the other one and it can learn
how to tap opportunities and
areas that went unrecognised.
From the above developed table, the variations recorded are described as under:
If Amana chooses Amazon, then it is not mandatory that it would be involved un
maintenance and management related activities or functions in case of development of personal
websites it would be demanding a more experienced level of executives.
 It undertakes time, cost and revenue for engagement of customers already
available in the market with a newly developed website when compared with
existing online sites such as for example Amazon.

 It is noticed that Mr. Amana website is not capable in reaching and tapping
large consumer base as there won’t be any relevant information present
which related to clients who consider online shopping whereas in case of
Amazon it has already built its customer base which would prove to be
fruitful.
Therefore, it can be said that Amana must chose Amazon as a better option because it is
giving guaranteed sales yearly and demands no management or maintenance (Porwal, 2001).
CONCLUSION
From the above prepared report, it can be asserted that for every work in any sort of
business or company it is mandatory that they have proper planning in advance as whether
the budgets and policies can be implemented in long run. Budgets are also useful for smooth
working and functioning of companies in long lifecycle of organisation. They help to reduce
related risks, costs and effect of unpredictable conditions too. It also provides guidance for
improvements of related results served by the company in competitive environment for a
period of time. It is also recommended that the management must prepare timely budgets
which would be helpful in controlling cost prevailing in short run as well as long run too.
The report would give an idea where the business must work to improve its related
performance and focus on goals.

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