Management Accounting 2: Control Report and Cost Analysis

MANAGEMENT
ACCOUNTING 2

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
PART A...........................................................................................................................................3
(i) Preparation of monthly control report showing original, flexed budget and variance...........3
(ii) Comment on Amana Ltd.'s Performance during the year 2020.............................................4
(iii) Recommendation to CEO of Amana Ltd. on areas of improvement....................................6
PART 2............................................................................................................................................7
Cost and revenue analysis of decision to set up own online shop or sell on Amazon.................7
Evaluation of cost and revenue analysis......................................................................................8
Advise on which decision to go...................................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES................................................................................................................................1

INTRODUCTION
Management Accounting is concerned with the preparation of financial reports to aid in
managerial decision - making for the future aspects of the business. With this, pursuing goals of
the business becomes easier due to the ability of MA in identification, measurement, analysis,
interpretation and communication of managerial information (Ismail, Isa and Mia, 2018). In the
present such reports meant for controlling variances in budgets will be prepared and assesses
with respect to Amana Limited which is family owned business operating in tourism industry of
England, United Kingdom. They are into the business of selling souvenirs to tourists which has
been produced by Chinese manufacturers as per their specifications. Therefore, monthly control
report will be prepared to indicate original and flexed budget along with variances taking place
therein and accordingly, the performance of the business will be reported for the period between
2020 and 2021. In the second part of this report, the decision of selling product online through
own platform or by using Amazon platform alternatively will be evaluated in terms of the
behaviour of costs incurred and revenue generated through these two decisions.
PART A
(i) Preparation of monthly control report showing original, flexed budget and variance
Particulars Original budget Flexed budget
(a)
Actual
(b)
Variances
(a) — (b)
No. Of units. 100000 80000 80000 —
Selling price 25 25 20 —
Sales Value (a) 2500000 2000000 1600000 400000
unfavourable
Variable expenses:
Material 250000
(100000 × 2.50)
200000
(80000 units *
2.50)
280000 80000
unfavourable
Labour 400000
(100000 units *
320000
(80000 units * 4)
440000 120000
unfavourable

4)
Overheads 150000
(100000 × 1.50)
120000
(80000 units *
1.50)
120000 0
Total Variable
expenses (b)
800000 640000 840000 —
Contribution (c) = (a)
— (b)
1700000 1360000 760000 600000
unfavourable
Fixed overheads:
Warehouse rentals 200000 200000 170000 30000
favourable
Insurance 100000 100000 100000 0
Full time warehouse
supervisor salary
50000 50000 35000 15000
favourable
Total fixed overheads
(d)
350000 350000 305000 —
Net Income (c) — (d) 1350000 1010000 455000 555000
unfavourable
(ii) Comment on Amana Ltd.'s Performance during the year 2020
Control report which is also known as variance between the actual and budgets helps the
company to identify the performance of the company. Identifying the performance based on the
gap between the flexed budget and actual is more significant and more accurately reflects the
state of finance. On the basis of control report prepared above, it can be said that the
performance of the Amana Ltd.'s business is poor and it might be because of the reduction in the
sales value and increase in the variable cost of production of souvenirs (Chiu and et.al., 2018).
First reason behind the poor performance of Amana Ltd.'s business is reduction in the
actual sales revenue as compared to flexed budget. The reduction in sales unit and selling price