Management Accounting: Budget Analysis and Suggestions for Amana Ltd

This report discusses the efficiency of Amana Ltd company in fiscal year 2020, and if there is any misconception in entity's task or a complexity in performance, give suggestions to entity's CEO for improving the department's functions. It also evaluates the options of going online or establishing its own online shop, taking into consideration all of the entity's expenditures.

Management
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
PART A...........................................................................................................................................3
Prepare a monthly control report that includes the original budget, the flexible budget, and the
variations.....................................................................................................................................3
Examine the control report and evaluate Amana Ltd.'s efficiency in the fiscal year 2020.........5
Make some suggestions for Amana's CEO on how to enhance the company............................7
PART B............................................................................................................................................8
Evaluate after determining if Amana should accept to go online or establish its own online
shop, taking into consideration all of the entity's expenditures..................................................8
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
A budget is a procedure of balance revenues, expenditures and corporate goals for a
specific time period. In other words, it is an estimation of how much amount company requires
and how much amount (Ahn, Hoitash and Hoitash, 2020). This report discusses the efficiency
of Amana Ltd company in fiscal year 2020, and if there is any misconception in entity's task or
a complexity in performance, give suggestions to entity's CEO for improving the department's
functions. Therefore, usually, this aids in understanding of company's various risks, and then
they design a strategy plan to fix the firm's interruption. It mainly focuses on organisation's
expansion and development in general. In the second part of this report, analyse what moves
Mr.Amana made to improvise the firm's efficiency, as well as how Mr.Amana establish his
enterprise on his own website or sold his items on Amazon, both of which caused costs for
entity. This report, on the contrary, integrate the idea of a budget. It includes budget analysis and
determining the sum of costs and revenue occurred over a particular period of time. It
significantly expresses how much money a person can spend and save over a specific time
duration.
PART A
Prepare a monthly control report that includes the original budget, the flexible budget, and the
variations.
The analysis presumes the planning of budget in terms of creation, flexibility, and
alterations. Firstly it is essential to determine the monthly control budget. In simple words, the
budget furnishes information which relies on data acquired from the entity's payroll workings.
On the contrary overhead expenses represents the variations in spending and utility. The
enterprise's most essential factor is to assists the owner or the leader in analysing the illustration
of investments made by entrepreneur. Businesses may find it complex to determine its
disclosure. This report also helps the organisation's top department to generate department's
operating cost maintenance and to start to estimate the techniques for reducing business cost and
expenses (Lennox and Wu, 2022).
Original budget: It consists of prepared budget which has been made on the grounds of
previous data or information, cost procured in the past and production level. With the assistance
of this budget the entity find it easier to determine the business performance of the future years.

It also assists to figure out the profits of the enetity in the upcoming period. It also contains the
difference between the static budget and the real or potential figure for the entity's revenues and
expenditures.
Flexible Budget: The budget also concludes the entity's set of performance or levels. In other
simple words, the budget explains the pricing framework that does not changes. When a
flexible budget is generated, it is a continuous adjustment with enterprise variations in
expenditure, and the advantage of this budget is that it assists in reducing money demolition.
More opportunities and quick performance, on the contrary, to alter the market and entity
environment (Malik, and et.al., 2021).
Budget Variance: Generally, this budget assists in consideration of the variations among actual
and original budgets, accompanied with the explanations of existing situation of the entity
and depicting different evolutions in the performance of enetity. These elements assists to
estimate the data which is already utilised by the entity to examine the evaluated, standard
and potential figures. If the variances results in positive that specifies business is in profit
but if it is in negative, then it depicts the wrong effect of the entity that have raised in
standard and real data. It is an accounting term that reports where actual cost is either
increase or decrease than the standard cost. It is estimated by deducting the potential amount
expensed from the amount for every and each line items. It is constantly caused by the
incorrect or bad evaluations or forecast the incorrect budget so the line is against that real
outcomes are estimated is not intellect. Many budget variances can be destroyed through the
primary assemblage of line of the budgets (Meiryani, Susanto and Warganegara, 2019). To
understand about the circumstances of the fiscal year 2020, the workings of initial budget,
flexible budget and variation of budget are represented in the table given below:

AMANA LTD
Monthly Control Report
Particulars
Original
Budget
Flexible
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%
Working Notes:
Revenue-
Original Budget: 100000*25= 2500000
Actual Budget: 80000*20 = 1600000
Labour: 100000*4 = 400000
Overhead:100000*1.50 = 150000
Raw materials-
Original Budget: 100000*2.50 = 250000
Examine the control report and evaluate Amana Ltd.'s efficiency in the fiscal year 2020.
The productivity of Amana Ltd in the financial year 2020 is clearly shown in the
previous report (Naranjo Tuesta, Crespo Soler and Ripoll Feliu, 2021). The above table's
calculation estimates the function and significance in of the accounting making decisions inside

the institution which shows the productivity of Amana Ltd's anticipated activities, along with
how it reacts to variations in the flexible budget, how it estimates the costs and revenues of
original data, and how it helps the firm in considering business. Discussing the functions and
significance of the accounting making decisions within the corporation performance. Generally,
there are certain different processes that helps in considering the work of a firm budgetary
report's subsequent obligation:
 Recognising the areas of higher costs: The entity is required to recognise different
activities in which high costs is indulged, which is the important cause reason for upsurge
the poor value of the revenue (Nielsen, 2018). Generally, the motive is to improvise the
framework of costs and making the plans which are implanted and after that spending on
the activities that can be proved beneficial to the firm and does not have any risk involved
with them.
 Costs that are readily trackable: The main purpose of preparing a budget is to furnish
assistance in recognising the amount of money which is to be paid and after that
preparing the budget on the grounds of future anticipations. It assists the entity in
examining the issues that results in misconception in the workplace while considering the
actions essential to meet the entity's budgetary objectives. In this report representation of
the financial choices of an entity, which it makes on an annual grounds instead on a
monthly basis, and it may also be based on the determination of manufacturing expenses,
material expenses, and other expenses occurred while the organisation undertakes its
business. Moreover, it makes a strategy in which money will be spend which is
financially different from the plan. It is prepared on the monthly basis by the entity as
expenses in the operating activities can occur anytime. While, operating the business a
firm should keep in mind regarding the budget of the institution as well. Moreover, when
an entity spends on the monthly basis then it assists the organisation in estimating the
money spending power more effectively and efficiently. The main purpose of a business
owner is to discover the optimal spending plan and strive to decline the entities cash
outflows and expenditures. Significantly, the entity may spend money on a advantageous
task instead of on prejudicial actions (Pasch, 2019).
 Determining the high pay out cost: If an enterprise requires to improve the way of
impairing the operational activities, then it should definitely analyse all the areas where

the enterprise is spending a lot of money and ensures to recover the activities where the
organisation spend lots of money and which also decreases the profit margin and revenue
of the business. The problem can be solved by paying less on the activities for tasks
which is not required and to focus on improvising and creating more profit for the entity.
The table above represents the various kinds of regions in which Amana Ltd has to
improve its performance (Shafati, Valiyan and Abdoli, 2020). It clearly presents that the
business firm predicts the original budget for the fiscal year 2020, yet the actual budget was
lower than the original budget in a number of groups, consisting:
 Initially the income of the organisation and its primary budget are represented in the
above table it can show that the entity's revenue exceeds its actual budget. Basically, it
signifies that the corporation expected a big revenue in the accounting year 2020 but
received less, indicating that the company has to boost its sales rather than pay out large
costs.
 In the second point, the following table shows that the firm has made a large investment
in costs, which results in decline in gross profit of the company as compare to its original
budget.
 In the third case, it refers that sales and gross profit than the they were expected and this
results in lowering of net profit for the financial year 2020 as well. In 2020, the company
will spend more money on operating expenses and will be less focused on profit,
resulting in lowering of net profit.
Make some suggestions for Amana's CEO on how to enhance the company.
The department of company has to produce more income as any any company can make a lot of
money if it sells a huge quantity of goods in the market and reduces its expenses on its daily
operations. Poor sales is just one factor that impacts the entity's actual budget. When sales
decreases and cost increases the net profit of the company declines (Tharapos and Marriott,
2020).
 Preparation for future scenarios: Every organisation has complexity while operating its
function. As a result, the firm must plan in advance for capability risks and helps the
entity in cooperating with modifications.
 Preparing a good budget plan: This is one of the most important step in preparation of
budget in advance as before execution of any plan an entity should firstly develop the

best strategy and then it should move forward to execute that strategy into the entity in
order to achieve the budgetary goal in an productive way. The chart depicts that the
organisation did not make a proper plan and did not functions in an productive manner,
which results in making of less profits in the accounting year 2020.
PART B
Evaluate after determining if Amana should accept to go online or establish its own online shop,
taking into consideration all of the entity's expenditures.
According to the previous case study, Mr. Amana's firm is operating and running
extremely well throughout the United Kingdom, Europe, and the United States. Mr. Amana feels
that all his competitors are now e-selling their product to the consumers and he has to shut down
its branches at Brighton, Birmingham city centre and Manchester (Tweedie, 2022). In order to
make its 50% online all these location branch are to be shut down. Closing these branches will
result in decline in revenue and impact overall turnover of the entity. Therefore, there is a
conflict between the two strategies for developing the organisation. One is to move the whole
entity online, and the other is to sell the goods through Amazon. The second option of selling
through Amazon is also considerable option, since it has its own advantages. Discussing both the
options in detail:
Option 1- If Mr. Amana considers selling through own website following cost would be incurred
expenses for upgrading and handling the internet website = £ 50000.00
Expenses for the delivery system = £ 150000.00.
A full-time IT programmer earns GBP 35,000.00 per year.
Total costs: £ 235000.00 (50000.00 + 35000.00 + 150000.00).
Opportunity cost of shutting down main city branches Brighton, Birmingham city centre and
Manchester. This closing will impact 50% of revenue online.
Benefits of staring own website as are as follows
 If Amana exercise this option he will have full freedom and control over his organisation.
There is no subscription cost that he has to pay.
 No competition to be faced with seller on the same website (Valiyan, Abdoli and
Karimi, 2018).

 No issue for selling price fixation entity by itself can affirm the price of the product.
 Return policy and other problems that seller faces.
 Mr. Amana can decides on its own about the discounts and benefits.
 No distribution of profits (Wu and Wang, 2020).
 Maintenance of secrecy.
 Easy engaging consumers as people prefer buying things online nowadays
 Assured sale of 100,000 units per year
Drawbacks of online business for Mr. Amana
 More costlier then selling on Amazon.
 Risk is not be able to achieve required sale
 Lack of experience
 Shutting down branches at prime locations which would impact the overall revenue of the
entity.
 Insufficiency of popularity about the online website of the enterprise, lot of promotion
and communication required.
 Company will not have a data base for consumers, no scope for artificial intelligence to
process the operations.
Option 2- Selling through online platform Amazon
Amazon is world largest online retailer and a worldwide recognized reputed platform. It is an e-
commerce website involved in digital streaming, retailing, artificial intelligence.
The business alternative option of selling through direct platform Amazon would have following
conditions :
1. Amazon fulfilment fees of Euro 50000
2. Selling of 65000 units on Amazon is fixed which can upsurge with respect to demand.
3. Lack of control over price and return policy.
4. Highly level competition.
Advantages of selling through Amazon :
 Amazon is reputed brand among the consumer, catching capable consumers would be a
easy task.
 Cost incurred on selling here is quiet low as compared to own website.

 There will be no obstacle in hiring and maintenance of staff and website operators. Mr.
Amana can concentrate on the sales part (Yang, Dumay and Tweedie, 2020).
 Guaranteed sales of 65000 units, this guarantee option is not available on own website.
 Using amazon initially would gain popularity to the product
 Scope of increase in sales and profitability that make it a safer option.
 Elimination of cost incurred while operating the business offline.
 It has a excellent artificial intelligence which directs customer and helps in increasing
sales.
Disadvantages of selling through Amazon:
 No control over price and return policy of the product which is the main disadvantage.
 Strong competition with other brand competitors.
 Lack of secrecy
 Amazon works on customer centric approach which is disadvantageous for the company.
 Profit sharing and increased commission with rise in revenue.
 Discounts and offers are not in control of the company owner.
Both the options available with the company as above discussed is critically examined. Option in
which the entity have to halt its operations in branch in the cities Brighton, Birmingham city
centre and Manchester. This would only upsurge 50% of the online sale and decline the offline
sale. Incurring cost of 235000 is more about 185000 more as compared to Amazon platform.
Following points can be concluded from the above discussion:
1. Starting own website cost will be relatively much higher then Amazon.
2. Assured sales on own website is 100000 units with setting up cost of 235000. With extra
opportunity cost of shutting down branches
3. Assured sales on Amazon website is 65000 units with cost of 50000.
4. In own website there is full control over price and policy unlike Amazon.
5. There is lot of competition that Mr. Amana have to face while selling on Amazon
platform.
As a result of the foregoing case study, it can be concluded that Mr. Amana should create his
own website, and that building a page will straight away produce profit for Mr. Amana.
Producing in greater quantities lowers the per-unit cost and boosts the entity's profitability.

CONCLUSION
As can be observed from the above report, the cause for the organisation's lower revenue,
gross profit, and net profit is that it spends more on expenses and focuses less on revenue. As a
result of these factors, the organisation's productivity declines, making it complicated to achieve
the enterprise's goals and objectives. The upper mentioned research clearly mentions that in
2020, some extra variables, such as trackable costs, high spend expenses, and regions where it
incurred high expenses, would pose a complexity for the organisation. These are the hurdles that
will create problems for the enterprise. Lastly, various improvements are suggested in order to
decrease excessive expenditures and sales. As a result, that enterprise may make a lot of money.

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