Budgeting and Decision Making for Amana Ltd

ASSIGNMENT 2
REPORT

Table of Contents
TABLE OF CONTENTS..............................................................................................................2
INTRODUCTION.........................................................................................................................3
MAIN BODY..................................................................................................................................3
PART A...........................................................................................................................................3
PLAN MONTHLY CONTROL BUDGET REFLECTING ORIGINAL BUDGET, FLEXED BUDGET AND
VARIANCES...................................................................................................................................3
EXPLAINING THE SUGGESTIONS PROVIDED TO AMANA’S CEO FOR IMPROVEMENT OF CERTAIN
AREAS...........................................................................................................................................6
PART B...........................................................................................................................................6
GIVE CERTAIN EXPLANATION FOR THE DECISION OF MR. AMANA ON SELECTION OF ONE
OPTION SUCH AS WHETHER HE MUST PLAN TO SET UP HIS OWN BUSINESS WITH THE
DEVELOPMENT OF WEBSITE OR PROCEED TO SELL IT ON AMAZON BY INCLUDING THE COSTS
THAT ARE NECESSARY..................................................................................................................6
CONCLUSION............................................................................................................................10
REFERENCES............................................................................................................................11

INTRODUCTION
The report prepared below explains importance of budget in financial management that can
be used for predicting futuristic profit and related costs. The budget can be prepared for
businesses, companies, individual persons and other financial institutions as well (Adeinat and
Abdulfatah, 2019). The reports and budgets are made at a point of time for carrying out related
plans efficiently and effectively within given time duration. The report explains monitoring of
funds and prepared reports in Amana ltd company. It also states the inclusion of different tools
and methods which are helpful in preparation of budgets for example original budgets, flexed
budgets and computation of variances as well. The calculation of variances discloses the
observed difference between actual cost and estimated expense in a company. The examination
of Amana’s productivity level and profitability of related firm for year 2020, when pandemic
strike the economy and affected the smooth running & functioning of business in environment.
The report also provides suggestions for better functioning of company and includes analysis for
providing related feedback for selecting one option as whether to start own store on online
platform or decide for tying up its operations with Amazon for sale related activities.
MAIN BODY
PART A
Plan monthly control budget reflecting original budget, flexed budget and variances.
Variance of the budget: A budget variance can be explained as an accounting instance
which can be helpful in finding out whether the actual expenses are less or more than the
projected or expected cost. A negative or unfavourable budget, reflects shortfall in case of
budgets being developed and prepared which might take place due to higher costs or missed
income. A favourable budget is when the expense is lesser when compared to cost expected. The
unfavourable variance explains emergence of higher costs than expected expenditures of budget.
The actual sales computed is less although when the revenue of budgeted amount is more than
the actual amount then the unfavourable balance in variances occur.
Monthly control report: It can be explained as a report that includes the data and
information relating to overhead costs, recorded fluctuations in expenses, payroll and utilities. It

is mandatory for businesses to recognise the areas of spending that reveals the spending pattern
of business persons. In every company, the budget is prepared and maintained by top level
supervisors and managers of the company. The monthly control report helps to evaluate
operating or working expense of a firm. It thus helps to recognize areas where the cost is needed
to increase or decrease for future functioning.
 Original budget: Such budget is prepared with proper understanding of data from
previous collected information. The budget is framed and expenditures are
measured with the help of evidence put at one place from previous year data. It
also assesses in computation of net profit generated in enterprise.
 Flexed budget: It is clear from the word itself as it recommends a budget that keeps
on getting modified and variation in changes is observed. Such budgets help to
record the alteration in profit earned by a business. This budget is useful for
comparing actual results with budgeted records (Booth, 2018). It is a beneficial
technique whereas there is various cost that are static in nature. In such cases, it
leads to certain issue in development of flexed budget.
AMANA LTD
Monthly Control Report
Particulars
Original
Budget
Flexed
Budget Variances Favourable /
Unfavourable
Revenue 2500000 1600000 -900000 Unfavourable
Less: Cost of Goods Sold 800000 840000 40000 Unfavourable
Raw Material 250000 280000 30000 Unfavourable
Direct labor 400000 440000 40000 Unfavourable
Overheads 150000 120000 -30000 Favourable
Gross Profit 1700000 760000 -940000 Unfavourable
Less: Non- operating / Fixed
Expenses
350000 305000 -45000 Favourable
Warehouse rental 200000 170000 -30000 Favourable
Insurance 100000 100000 0