Budget Variance and Analysis of Amana Ltd's Efficiency

This report provides an overview of budget, monthly control reports, budget variance and original budget with reference to the budget of Amana Ltd. It also evaluates the efficiency of Amana Ltd as an organisation in the financial year 2020 and gives suggestions for improvement. Additionally, it assesses the possibility of whether Amana Ltd should initiate online selling through their own website or with the help of a platform Amazon, taking in consideration all the necessary cost related factors.

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
1. Prepare a monthly control budget report representing budget variance, flexible budget and
variances......................................................................................................................................3
2. Taking the control report in consideration, evaluate the efficiency of Amana Ltd. as an
organisation in the financial year 2020........................................................................................5
3. Give some suggestions to Amana’s CEO on areas of improvement.......................................7
PART-B...........................................................................................................................................7
1.Measure and assess with the help of an effective analysis, the possibility of whether Amana
Ltd as an organisation should initiate online selling through their own website or with the help
of a platform Amazon, taking in consideration all the necessary cost related factors.................7
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Budget is a form of an estimation which relates to the revenues and expenses that an
organisation decides upon a specified and decided time period. In this report an overview of
budget, monthly control reports, budget variance and original budget is explained with reference
to the budget of Amana Ltd (Ping, 2021). This report mentions about an organization of Amana
Ltd which is facing the issue of lower sales revenues in their operations which has disrupted their
performance. There is a discussion of the inefficiency and issues that the organisation is facing
due to which the revenues have been lesser than the standards which the company is expecting
upon. The other aspect in the report includes some recommendations that are provided to the
CEO of Amana Ltd to improve their efficiency and business productivity. The other part of the
below report evaluates the two different alternatives available to Amana Ltd and assist in
choosing the better option with an effective evaluation.
MAIN BODY
1. Prepare a monthly control budget report representing budget variance, flexible budget and
variances.
Monthly control reports: A Monthly management reports is a type of report which reviews,
evaluates and measures an organization’s financial as well as operational performance on a
monthly basis. This report helps the management of a business organization to track the data
from the past, present data with each other for the purpose of evaluating the business
performance and providing assistance in taking the accurate and effective decisions.
Original Budget: It refers to detailed and future looking combined budgets which assist to
understand the past data of the business organisation consisting both revenues and expenditures
that have occurred. It also aids to formulate the future revenues standards which the business
should aim to achieve with the set expenditures as per past expenses (Brusca, Labrador and
Condor, 2019).
Budget variance: It is an accounting term which explains the tasks and business instances due to
which there occurs a difference between the actual and the standard costs decided by the
company. The budget variances take place when the management compares the data from actual
budget as well as original budget and determines the deviations. It shows both the positive
deviations as well as the negative deviations from the targeted business numbers that the

organization aimed to achieve. A variance in the budget which is negative shows that the budget
has shortfall to the expectations and a positive budget variance shows that the revenues earned
are higher or the costs are lower than standard cost decided.
Flexible budget: A flexible budget is a type of budget which can be adjusted according to the
volume levels that the business decides upon. It is not like a static budget which is rigid on the
activity levels and volumes earned by an organization, a flexible budget adjusts according to the
changes taking place in the production volumes in the business and it flexes according to the
effective variation’s taking place in the business.
AMANA LTD
Monthly Control Report
Particulars
Original
Budget
Flexed
Budget Variances Variance
(%)
Revenue 2500000 1600000 -900000 -36.00%
Less: Cost of Goods Sold 800000 840000 40000 5.00%
Raw Material 250000 280000 30000 12.00%
Direct labor 400000 440000 40000 10.00%
Overheads 150000 120000 -30000 -20.00%
Gross Profit 1700000 760000 -940000 -55.29%
Less: Non- operating / Fixed
Expenses
350000 305000 -45000 -12.86%
Warehouse rental 200000 170000 -30000 -15.00%
Insurance 100000 100000 0 0.00%
Full time Warehouse
Supervisor salary
50000 35000 -15000 -30.00%
Net Profit 1350000 455000 -895000 -66.30%

2. Taking the control report in consideration, evaluate the efficiency of Amana Ltd. as an
organisation in the financial year 2020.
The productivity and efficiency of Amana Ltd is evidently visible from the above table as in
the financial year of 2020. The budget presented above shows how the organisation has been
able to effectively implement the tasks assigned and the standard targets set by the business. The
budget helps to determine the ways that the CEO of Amana Ltd (Topazio and et.al.,2020). The
organisation has incorporated the various standard budget numbers in the flexible budget and has
measured the business expenditures as well as revenues so as to assist the business in achieving
the goals and desired results for the organization. But there still are a few areas which need
improvement so as to make its operations and the results achieved more effective as evaluated
from the above presented budgetary report. There are a few points which help the organization of
Amana Ltd to analyse its performance activities with the help of the budgetary reports:
1. Traceable Costs: This is also referred to as the cost which has established a direct cause
and effects association with a process, product, customer or any other cost associated
object. It helps the business organization to analyse the areas where the money is being
spent in the normal course of the business (Oyewo, Vo and Akinsanmi, 2021). Effective
assignment of the traceable costs as in the form of a common fixed cost object is
necessary in the business as it impacts the capability of the business to increase its
profitability in the future. For example: Amana Ltd in its initial years of commencement
did not had presence of a research-and-development division due to which there was no
cost object as a research-and-development division manager to whom it is assigned to
pay the salary.
2. Identify excessive expenditure areas: It has been observed from the above presented
budget of Amana Ltd that the expenses of the business are a lot higher than what are the
expected values for them. This acts as a major inefficiency for the business as it fails to
achieve the profits in effective manner due to higher expenditure generation in the
company (Horton and et.al., 2020). This issue can be resolved by reducing the
expenditures that the organisation does on the business activities by classifying the
activities which are essential for the business and the activities which are not necessary
and hence should be avoided.

3. Introduce better efficiency in business: It can be seen from the above presented budget
that the company has not been able to earn the standard amount of business revenues in
the organisation due to the inefficiencies that are present.it should evaluate the business
products and their pricing along with an analysis of the units that are being sold and what
are the variances in product selling that are occurring in the business (Kreilkamp,
Schmidt and Wöhrmann, 2020). This is necessary so that Amana Ltd is able to
understand the scope of areas which are making the business inefficient and could be
improved in a faster manner.
It can be clearly seen that the organization predicted upon a higher original budget for the
financial year 2020 but the actual budget attained is lesser than the original budget. The areas
where the business lacks its efficiency are:
o From the budget above, it can be observed that the expected standard revenues of the
business are way higher in comparison with the actual revenues that the business earned
in its operations. This shows that the business has been ineffective in a successful
implementation of the business operations due to which the revenues generated are lower
than the standards (Cokins and Căpușneanu, 2020). So it means that Amana Ltd as an
organization requires to upgrade its budgetary planning departments with individuals
who can accurately plan upon the budgets as well as effectively market its products on a
larger scale so as to achieve the desired amount of revenues.
o It can also be observed that the business has spent a lot more on its operations leading to
high costs incurring due to which the gross profits attained by the business has lowered
to a high scale. This shows that the business needs to control its costs in an effective
manner so as to earn better business revenues.
o It has also been seen due the higher amount of costs and lower gross profits in the
business, the net profits of Amana Ltd has also been very low in comparison to the
standard net profits decided by the business concern (Nielsen, 2018). In the year 2020, it
has spent the highest amount of money on its expenditures which resulted in lower
revenues generations which successively lead to low gross profit margins and lower net
profits. This displays that it has been inefficient in its operations and hence failed to
achieve the standards earlier set.

3. Give some suggestions to Amana’s CEO on areas of improvement.
The CEO of Amana Ltd is advised of the following necessities and modifications to implement
in its operations:
 The business and management of Amana Ltd is needed to reframe their plans and
strategies so as to improve its current results. The administration is required to work on
plans and strategies which can help the business to achieve effective results in the form of
higher profits which would be possible only when the business makes enough revenues
with the sale of its products (Ismail, Isa and Mia, 2018). Hence the CEO is required to
act along with the management in the terms where the sale of its products and the
business revenues accelerate as compared to present numbers.
 The CEO along with the management should ensure that the budgets presented in the
organisation are formulated with reasonable research and effective planning so that the
standards set are effective to the actual capacity of the business and hence the presence of
variations could then be reduced. This would help the business of Amana Ltd to realise
better results with efficient output in future operations.
PART-B
1.Measure and assess with the help of an effective analysis, the possibility of whether Amana
Ltd as an organisation should initiate online selling through their own website or with the
help of a platform Amazon, taking in consideration all the necessary cost related factors.
1. Option of selling through its own website involves costs as follows;
Delivery network costs = £ 150000
Website updating cost= £ 50000
Full – time salary of IT programmer = £ 35,000 annually
Assured sale of 100000 units yearly
Total costs = £ 235000.00
2. Option of selling through its Amazon involves costs as follows;
Amazon fulfilment fees is £ 50,000
Total costs = £ 50,000
Assured sale of 65000 units yearly

The difference between the costs of the two alternatives options present above is £ 185000
which is a considerable difference amount of money that could be utilised for expanding and
making the business better (Miles and Miles, 2019.
 Selling through Amazon: Amazon is an online selling platform which provides
businesses with facility of selling their goods and commodities on an online platform and
connects a business to customers globally (Bracci and et.al., 2022). The primary benefit
related to this source of online selling is that is connects the businesses on a global scale
with a high reach of customers that helps the companies to increase their revenues
through high sales. Amazon acts as a system which connects the retailers with the facility
of selling their products to a mass customer base and helps the customers with the buying
facility from the platform.
 Company’s own website: Commencing an own website for the business is primarily
based on the idea of expanding the business activities as well as accelerate the business
revenues of the company. In this scenario, Amana Ltd aims to initiate the service of
online selling with the aim of increasing its product sales which can help them to increase
their business revenues and hence achieve the objective of profit maximization. This will
assist the company to provide its customers with the facility of ordering its products from
anywhere they are present and would eliminate the necessity of them to visit the store
outlets physically.
Basis Amazon Company’s own website
Reach It has higher base of
customers with higher sales
generation chances.
The reach of own website
would require a considerable
amount of time.
Management Amazon would maintain the
website and the sellers profile
on its own with minimum
involvement needed from the
Amana’s management team
(Schaltegger, 2018).
It would require a high
involvement of Amana Ltd as
an organisation with all its
administration and
management teams giving
their times in planning and
executing the processes.
Owned The sellers profile is The owner of Amana Ltd has

controlled by Amazon and
hence very minimal
contribution of the seller.
the entire control involving
website designing, product
availability and even the
discounts.
Costs Financial investment
involved to be given by the
seller amounts to only £
50000 as in comparison with
other option.
This alternative requires an
investment of £185000 which
is very huge in comparison to
the option of selling through
amazon.
Data Amazon already has a huge
mass of user and customer
data available which is
utilised to infuse high sales.
This will surely require a
considerable amount of time
to build the reach of Amana
Ltd so as to initiate their sales
through websites as there is
absence of enough data of
customer’s to initiate sales.
Competition Since there is a big online
selling market already
established therefore there is
very high competition present
with other big and already
established brands.
The website is of Amana Ltd
and hence there is no such
competition present which
can disturb or reduce the sales
and revenue of the company
(Nkundabanyanga, Muhwezi
and Tauringana, 2018).
So from all the above discussions it can be said that the business of Amana Ltd should start
their own website and commence with their own online selling system as it guarantees the
business with 100000 sales for a year which is a great number to start with when the company is
just initiating with the idea of online selling. The other reason is as the competition present on
Amazon is very high hence it can affect the sales of Amana Ltd and cause reduction in or lower
the company sales that will adversely affect the revenue the business will earn in the future.

Hence the organisation of Amana Ltd should go with the alternative of initiating company’s own
website for sales (Endenich and et.al., 2020).

CONCLUSION
From the above report, it could be concluded that budgets are very necessary and effective
elements in deciding upon the efficiency and productivity of a business organization. The
importance that it holds with respect to measuring and evaluating the revenues and expected
productivity for businesses is also given. The report concludes upon the various inefficient
factors due to which the business of Amana Ltd is not performing up to the standards are also
evaluated. The later part of the report concludes upon as how a company’s own website is better
than the alternative of selling on Amazon as an online selling platform for the purpose of
increasing the sales and revenues of Amana Ltd.

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