Management Accounting 2 Report - Amana Ltd

This report provides a detailed analysis of the monthly control report for Amana Ltd, including original budget, flexed budget, and variances. It also includes recommendations for areas of improvement and a discussion on switching to online business. The report highlights the importance of management accounting in attaining financial operational efficiency. The subject is Management Accounting 2 and the course code is not mentioned. The report is relevant for students studying management accounting and finance. The college/university is not mentioned.

Management
Accounting 2 Report

Table of Contents
Introduction....................................................................................................................................3
Part - A............................................................................................................................................4
(i) Prepare the monthly control report showing original budget, flexed budget, and
variances................................................................................................................................4
Statement of Original Budget................................................................................................4
Statement of Flexed Budget..................................................................................................4
Statement of Variances..........................................................................................................5
(ii) Using your control report prepared in (i) above, prepare a report on Amana’s
performance during the year 2020......................................................................................5
(iii) Provide recommendations to Amana’s CEO on areas of improvement..................7
Part – B...........................................................................................................................................8
Conclusion....................................................................................................................................10
References.....................................................................................................................................11
Books & Journals...............................................................................................................11

Introduction
Management accounting can be defined as an important tool that helps in attaining the end
objectives of the business organization in the most effective manner. It helps an organization in
recognizing, breaking down and translating to make the organizational structure stronger so that
it can achieve higher level of financial operational efficiency effectively. It is basically a type of
accounting that helps in the financial book keeping. In order to make various managerial
decisions it is highly important that the financial information of the company is made in an
efficient manner. In context to this report, different practical tools of management accounting are
used in order to prepare a budget for the organization namely Amana Ltd. So that the proper
management of the finances can be done effectively. Along with this, a critical discussion on
switching to the online business is performed so that the respective business can attain higher
level of profitability.

Part - A
(i) Prepare the monthly control report showing original budget, flexed budget, and variances.
A flexible budget can be defined as the budget which is majorly used by the organization when
the business organization is dealing with the shifting expenses as well as the incomes. For the
preparation of such kind of budget it is important to extract all the costs which includes the
incomes and the expenditures into the account (Ciftci and Salama, 2018). This helps in having
certain amount of projection that assists the business organization to deal with the financial
responsibilities effectively. For a longer duration, flexed budget is often used by many of the
organization because it is more effective as compared to the static budget. Except the fixed costs,
all the costs keeps on changing throughout the financial period.
Statement of Original Budget
Particulars Original Budget
Production 100,000
Variable costs:
Materials
Labours
Overhead
250,000
400,000
150,000
Fixed overheads:
Warehouse rental
Insurance
Fulltime warehouse supervisor salary
200,000
100,000
50,000
Statement of Flexed Budget
Particulars Original
Budget
Variable Cost
per unit
Flexed Budget
Production 100,000 Original Budget/
100,000
Average cost *
80,000
Variable costs:

Materials
Labours
Overhead
250,000
400,000
150,000
2.50
4
1.50
200,000
320,000
225,000
Fixed overheads:
Warehouse rental
Insurance
Fulltime warehouse supervisor salary
200,000
100,000
50,000
2
1
0.5
160000
80000
40000
Statement of Variances
Particulars Flexed
Budget
Actual
Budget
Variance
Variable costs:
Materials
Labours
Overhead
200,000
320,000
225,000
250,000
400,000
150,000
50000
80000
75000
Fixed overheads:
Warehouse rental
Insurance
Fulltime warehouse supervisor
salary
160000
80000
40000
200,000
100,000
50,000
40000
20000
10000
(ii) Using your control report prepared in (i) above, prepare a report on Amana’s performance
during the year 2020.
In context to the above calculations performed, budget is prepared in different manners so that
the financial objectives can be achieved without any kind of hindrances. Budget can be defined
as basically an estimation that helps extracting the revenues and the expenditures incurred over a
period of time which are merged in order to conduct the evaluation on the periodic basis
(Meiryani, Susanto and Warganegara, 2019). In order to manage the monthly expenses, it is
highly important for a business organization to use the tool of budget so that the business

organiza6tion can run effectively. From the above calculation, it can be seen that the firm has
incurred more amount in the fixed and variable expenses of the company as compared to the
flexed budget. A flexed budget is basically a type of budget with various fluctuations in the
actual revenue gained by the company. This kind of budgeting is often followed in many of the
business organization because it helps in evaluating the comparability of the actual results with
that of the budgeted results. Also, the actual expenses have been higher as compared to the
amount of expenses that have projected through the budgeted amount. The variance have shown
the unfavourable results from the budgeting of the company which have disclosed that the
business organization namely, Amana Ltd faced certain level of inefficiency in developing the
projected budget because the results have been showing an excess of fixed and variable
expenditures (Freidank and Sassen, 2020). Considering all the variances mentioned above, the
variable costs including materials, labours, overhead have increased by 50000, 80000 and
75000 respectively. In addition to this, the fixed costs which includes warehouse rental,
insurance, fulltime warehouse supervisor salary costs have increased by 40000, 20000 and 10000
respectively. In addition to this, it must also be considered that the company was operating on the
basis of physical stores stating that the costs were higher in that case. Offline operations are
considered as very high as compared to the online operations. Therefore, it can be considered
that these variances have shown that the amount have disclosed a considerable amount of
imbalances.
Management accounting systems hence, plays an significant role in dealing with the
financial complications in effective and efficient manner. It benefits to accomplish the results
with the application of resources and with the utilization of funds and least costs that helps in
attaining highest level of efficiency.
There are different ways which can be used by Amana Ltd in order to manage with the financial
cost management problems:
 Good Financial management: The chances of financial cost inefficiency gets
reduced when the financial data of the business is carefully assessed. It helps in
undertaking the financial difficulties and improvising the reports of financial
management. It is the most appropriate method that ensures that all the data related to
the cost is relevant.

 Balance Scorecard: It can be used by the company so that the management and
identification of various different outcomes and various business functions can be
done effectively. It helps the company in order to accomplish objectives and growth
in long run (Ferramosca and Ghio, 2018). It is a strategic tool that assists for a well-
structured report that includes execution of operations to control costs. It is used for
the purpose of planning in a better & a strategic way.
 Benchmarking: It helps in establishing the standard and must be used with an
objective to evaluate the risks. It is the method that helps the company to stay updated
with the trends related to the costs in the business organization and helps the company
to achieve higher level of standards with high level of efficiency while dealing with
the costs.
 Adaptability: The organization must have the capability to adapt latest trend and
fluctuations according to the dynamic business environment. There are various
variations which can arise due to guidelines or policy and all the activities in the
organization that are conducted on the basis of these policies.
 Conducting adequate research: An extensive research helps an organization to
indicate and identify the advantages and disadvantages of the specific decisions
which are related to the business. It is highly important to conduct certain adequate
research that can be highly important for the business decisions in relation to the cost
management that are directly related to the financial objectives.
In the present scenario, the organizations have adopted various concepts in order to manage the
financial working as well taking various decisions related to management of financial working.
Management accounting tools helps in attaining sustainable success and inculcates essence of
efficiency. In relation to Amana Ltd, the organization should go for focus on sustainable success
and development in longer run as it helps in resolving various financial problems which will
eventually help the company to achieve long term success through achieving high level of
financial efficiencies.
(iii) Provide recommendations to Amana’s CEO on areas of improvement.
In every organization, it sometimes happens that an organization faces certain issues in relation
to the management of the costs (Kroos, Schabus and Verbeeten, 2021). It can be challenging for

any organization to handle the challenges integrated with the most effective ways. For the
business organization Amana Ltd, cost control can be one of the major and the best ways through
which the business can perform well in consideration to keep a control on the economic
environments. It is highly important for the Amana Ltd to lower down the overhead costs and
achieve the optimum level of costs. Also, it is highly recommended to the CEO of the company
to not only concentrate on the cost control but also the cost management in order to achieve
higher level of financial efficiency. Cost control measures the actual amount of expenses as
compared to the estimated, or budgeted, expenses so that the business organization proactively
address variances. Cost control establish various corrective actions that will ultimately help in
enabling the business organization to lower down the unexpected costs. Along with this, Amana
Ltd need to maintain the inventory management in a better way so that the company do not
spend higher amount of funds on the inventories or the stock of the company. This will help in
maintaining the optimum level of inventory in order to avoid the situation of excessive and
deficit of the stock or inventory.
Part – B
In the current scenario, online businesses are giving a tough competition to the traditional offline
businesses. This is helping them to earn a greater amount of revenue along with a higher level of
profitability (Bourmistrov, Grossi and Haldma, 2019). An online business is basically any type
of business that is executed over the digital platforms by utilizing the internet. It will basically
involve the buying and selling of the goods and services on the various platforms virtually. In
context to the report, Mr. Amana’s decision to move its 50% of sales towards the online selling
is significantly profitable. While considering the selection of the type of online method to run the
business, it is considered that selling on the online platform of Amazon will be a good idea to
execute. Establishing a self own online business platform and incurring a huge amount of cost on
it may also result into various hindrances which are explained below:
 Copyright infringement: This can occur often because there is a huge of content and
ideas which are already existing on virtual marketplace. This can result into different
legal cases against the company harming the overall reputation considerably.
 Data Privacy & Security: There is also a risk of data privacy and the security which can
result in affecting the image of the brand value of the company.

The above mentioned hindrances which can affect the working of the business organization.
Also, it can be considered that Amazon plays a major role in protecting the copyright, frauds,
data privacy and security related issues in a very efficient manner (Tucker, 2019). The major
reason behind that is that Amazon is following strict terms and policies in its trade policies so
that it can provide an efficient, transparent and safe platform for the various business
organization to run its business operations effectively.
The major reason behind choosing this way to execute the business is that the amount required
for investment in order to switch towards online sale through Amazon are comparatively lower
than the amount that is required to set up a separate online shop. Also, selling through Amazon
will result into calculative risk taking which will make this move to shift from offline to online
more profitable. The various advantages that Mr. Amana can get by having its business on
Amazon which are mentioned underneath:
 Amazon provides an already well-established and organized market to the buy and sell
the goods and services on the digital platform.
 The cost of setting up the business on Amazon is involving a lower of cost as compared
to costs of establishing the whole business by own. The cost to list the products on
Amazon is just £50,000 while on the other hand the cost of setting the own business is
almost, £235,000 which is considered as huge.
 Amazon is also providing guaranteed sale of approx. 65000 units on yearly basis.
 Amazon provides performance based incentive programmes that help in providing the
recommendations so that the growth can be accelerated on customized basis.
 Amazon plays an important role in empowering the business organization so that the
performance can be improved consistently.
 Amazon also provides more reach of the potential customers towards the products and
the services of the respective business organization.
The above mentioned advantages can be highly profitable for the Amana Ltd. Although, it can be
seen that the amount of returns in the forms of unit sold per year are higher by 35000 units in the
self-established online business but it involves only the element of risk which can somehow
affect the profitability of the business organization (Alam, 2020). While on the other hand,
Amazon is incurring less amount of costs but it is providing guaranteed sales. In addition to this,
a self-established online business will also take a longer time period to get established that to

with a lot of efforts. That’s how considering all types of relevant costs mentioned above gives
the insights that if Mr. Amana wants to take a risk for attaining a higher amount profits, he can
go for self-established online business while if he wish to go for a calculative risk taking then he
can go with Amazon.
Therefore, it is highly recommended to Mr. Amana and his company that it will be better if it
select the option of Amazon to run the business. It will help the respective business organization
to run its business operations in an easier and suitable manner. Also, the element of safety and
compliance with the legal rules can be effectively dealt with (Maranjory and Alikhani, 2020).
The one of the major and the best advantage Mr Amana will receive is that everything related to
the business operations will be closely handled and monitored by Amazon. This will result into
effective controlling of the business operations assisting the respective business entity to deal
with the deviation which may or may not hamper the overall performance of the business
organization. With the involvement of customized recommendation from the end of Amazon will
also help Amana Ltd to implement and execute the corrective measures to attain highest level of
efficiency consistently.
Conclusion
From the above report it can be concluded that for every business organization it is highly
important to apply the tool of management accounting to attain the end objectives of the business
organization in a longer run. Preparing budgets is considered as one of the major and the
important element that helps in maintaining all the costs related to the business organization. In
relation to Amana Ltd, the original, flexed and variance budget is prepared to ascertain the
financial position of the business organization effectively. It could be seen that the respective
business organization have seen a considerable increase in the amount of the actual budget as
compared to the original budget. In the second part of the report, it was recommended to the
CEO of Amana Ltd that shifting the 50% sales on the online platform must be done through
Amazon, which will help in enhancing the profitability and productivity to a higher level.

References
Books & Journals
Ciftci, M. and Salama, F. M., 2018. Stickiness in costs and voluntary disclosures: Evidence from
management earnings forecasts. Journal of Management Accounting Research, 30(3).
pp.211-234.
Meiryani, M., Susanto, A. and Warganegara, D.L., 2019. The issues influencing of
environmental accounting information systems: an empirical investigation of SMEs in
Indonesia. International Journal of Energy Economics and Policy, 9(1). p.282.
Freidank, C. C. and Sassen, R., 2020. Kostenrechnung: Grundlagen des Management
Accounting, Konzepte des Kostenmanagements und zentrale Schnittstellen. Walter de
Gruyter GmbH & Co KG.
Ferramosca, S. and Ghio, A., 2018. Accounting choices in family firms: An analysis of influences
and implications. Springer.
Kroos, P., Schabus, M. and Verbeeten, F., 2021. The Relation between Internal Forecasting
Sophistication and Accounting Misreporting. Journal of Management Accounting
Research.
Bourmistrov, A., Grossi, G. and Haldma, T., 2019. Special issue on accounting and performance
management innovations in public sector organizations. Baltic Journal of Management.
Tucker, B. P., 2019. Heard it through the grapevine: conceptualizing informal control through
the lens of social network theory. Journal of Management Accounting Research, 31(1).
pp.219-245.
Alam, M., 2020. Organisational processes and COVID-19 pandemic: implications for job
design. Journal of Accounting & Organizational Change.
Maranjory, M. and Alikhani, R., 2020. The moderating role of manager's narcissism on the
relationship between environmental uncertainty and CSR. Journal of Management
Accounting and Auditing Knowledge, 9(35). pp.263-272.
Hutaibat, K., 2019. Accounting for strategic management, strategising and power structures in
the Jordanian higher education sector. Journal of Accounting & Organizational Change.
Stein, S.E., 2019. Auditor industry specialization and accounting estimates: Evidence from asset
impairments. Auditing: A Journal of Practice & Theory, 38(2). pp.207-234.