Management Accounting: Performance Analysis and Improvement Strategies for Amana Ltd

This report provides a performance analysis of Amana Ltd using monthly control reports and recommends improvement strategies for the company's sales, material purchase, and labour cost maintenance. It also includes a comparative analysis of two options for Amana Ltd to go online and recommends setting up their own online shop.

Management accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
PART A...........................................................................................................................................3
(i) Presenting preparation of monthly control report showing original budget, flexed budget
and variance of Amana Ltd..........................................................................................................3
(ii) Presentation report on the performance of Amana Ltd, as per the control report of the year
2020.............................................................................................................................................5
(iii) Recommendation to Amana Ltd CEO regarding different areas of improvement...............6
PART B...........................................................................................................................................7
Comparative analysis of two options for Amana Ltd..................................................................7
Recommendation to Mr Amana...................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES................................................................................................................................1

INTRODUCTION
Management accounting is a vast concept. It basically means the evaluation and also the
communication of the financial information or the financial records to the managers of the
businesses to take the informative decisions efficiently. The concept of management accounting
is different from the concept of financial accounting in particular. The major focus of
management accounting is on the cost as well as the sales information of the particular
organization's commodities in particular. The report below provides information regarding the
company Amana Ltd. A business in England that is owned by a family. The business is mainly
of selling the souvenirs to the travellers in particular. The report highlights the issues the
business has particularly been facing due to the occurrence of the pandemic and this has
impacted the business in various ways which is mainly stated in this report in particular.
PART A
(i) Presenting preparation of monthly control report showing original budget, flexed budget and
variance of Amana Ltd.
Formula to compute flexed budget = Actual units * budgeted price/ cost
Formula to compute variance = Actual – flexed budget
The variance or gap between the actual and flexed budget can be either favourable or adverse.
In case if actual revenue is higher than the flexed revenue, than this indicate favourable variance.
While on the other hand, if actual cost is higher than the flexed cost, than this indicate adverse
variance (DO and et.al., 2020).
Particulars Original
Budget (£)
Flexed
Budget (£)
Actual (£) Variance (£)
(Actual budget
– Flexed
budget)
Favourable
or Adverse
Total number
of units sold
during the year
(A)
100000 80000 80000

Selling price
per unit (B)
25 25 20
Sales Revenue
(C) = A * B
1000000 * 25
= 2500000
80000 * 25 =
2000000
80000 * 20 =
1600000
1600000 –
2000000 =
-400000
Adverse
Less Variable
Costs:
Materials
(D)
100000 * 2.50
= 250000
80000 * 2.50
= 200000
80000 * 3.5 =
280000
280000 –
200000 =
80000
Adverse
Labour
(E)
100000 * 4 =
400000
80000 * 4 =
320000
80000 * 5.5 =
440000
440000 -
320000 =
120000
Adverse
Overheads
(F)
100000 * 1.50
= 150000
80000 * 1.50
= 120000
80000 * 1.5 =
120000
120000 –
120000 = 0
-
Contribution
(G) = C – D –
E - F
100000 * 17 =
1700000
80000 * 17 =
1360000
80000 * 9.5 =
760000
760000 –
1360000 =
-600000
Adverse
Less Fixed
overheads (H)
Warehouse
rental (I)
200000 200000 170000 170000 –
200000 =
-30000
Favourable
Insurance 100000 100000 100000 100000 –
100000 = 0
-
Fulltime
warehouse
supervisor
salary
50000 50000 35000 35000 – 50000
= -15000
Favourable
Profit 1350000 1010000 455000 455000 –
1010000 =
Adverse

-555000
(ii) Presentation report on the performance of Amana Ltd, as per the control report of the year
2020.
As per the monthly control report of the company that is presented above it is evaluated
that the revenue statement is considered to be in unfavourable conditions in particular. Which is
basically compared to the expected and the desired results of the company and the revenue is not
in accordance to that. Before the pandemic hit it is evaluated that the company was particularly
generating a good amount of profits in particular but due to the occurrence of the major
uncertainties within the economic situations because of Covid, the situation has imposed
potential barriers in the process of growth of business. The original budget of the company for
the goods is £2500000, the flexed budget of the company is £2000000, whereas the actual budget
of the company is £1600000. The overall variance value is calculated to be negative which
obviously points to the fact that the performance of the business is not up to the mark. In such a
case most of the conditions are considered to be unfavourable for the company. For betterment of
the levels of revenue the company is required to reconsider the project revenue through
modifying the processes, volumes and the prices in particular (Harel., 2021). Change in the
products and betterment of marketing strategies by improving the marketing budget can also
allow in overcoming this challenge.
Through the report prepared it has also been identified that the warehouse rental
overheads are considered to be favourable. It actually means that the actual expenses related to
the warehouse rental of the business is basically lower than that of the flexed warehouse rental
expenses (Schuster. Heinemann. and Cleary., 2021). This situation points out that the
performance of the company is good. It also might be because of the reason of that this expense
in particular a fixed expense that is constant through the year. Which gives the company a
chance to adopt suitable and appropriate strategies to reduce these expenses. The direct labour
expense of the company is considered to be unfavourable though (Pastore. and et.al). This also
cuts out the positive impact of one expense being favourable. The actual direct labour costs is
more than that of the flexed one. This further indicates towards the low and the poor
performance of the company in terms of the management and the controlling of the direct labour
costs. Whereas, in case of the direct overhead costs of the company there is no variance that has

been indicated in the year 2020 in particular. Which again indicates towards the good
performance of the company. As per the evaluation of three major costs or expenses that were
incurred by the company, the major requirement is to do better market evaluation and research
(Portillo. and Stinn., 2018). Also, increase in the levels of focus on the internal control system of
the company for the purpose of meeting the expected standards of budget is required.
The expenses related to the direct materials which is basically the expenses made by the
company to purchase the direct materials for the purpose of production (). This information as
per the control report is also considered to be unfavourable for the company. This is mainly due
to the deficiency in the quality of the market research and also other factors present in the market
that the company is operating within. The original budget or the actual budget of the company
for specifically the direct materials was £250000 as well as the flexed budget was £200000, still
the results that were expected by the company were not achieved. Hence, the company is
required to change the strategies and implement better strategies for the purpose of maintenance
of their position in the market.
Therefore, as per the evaluation of the major factors of the company's financial records
the major requirement of the company is to implement strategies that allow in decreasing the
costs and further improving the sales revenue levels (Bartik. And et.al., 2020). For elimination of
the variance, the major necessities that the company can focus on and implement are, analysis f
every element of budget that are leading to creation of variance. As per the control report the
company has still earned profit during the year but it is less than what was expected by the
company. This variance is majorly occurring due to the pandemic and through the
implementation of the right strategies at the right time it can be eliminated too.
(iii) Recommendation to Amana Ltd CEO regarding different areas of improvement
After analysing the performance of Amana Ltd during the year 2020 using the monthly
control report, it has been identified that there are many areas where company is lacking such as
sales, purchase of material, labour cost maintenance. In order to improve these areas, the
following strategies has been recommended to Amana Ltd are as follows:
 Add products and service in portfolio: This is one of the strategy which is recommended
to Amana Ltd. As per this strategy, it is recommended to company that they should

include more products as well as services in their product portfolio in order to cover large
market or customer demand. By adding different products and services in the portfolio,
Amana Ltd able to solve attract more customer all over the world (Jovanović, Dražić-
Lutilsky and Vašiček, 2019). The impact of which overall sales revenue of company will
improve without increasing the selling price of products and services.
 Enter into forward contract: This is another strategic action advisable to Amana Ltd
under which the company need to enter in a forward agreement with the suppliers of raw
material. It will help the company to deal with the issue regarding increase in price of raw
material. In this strategy, Amana Ltd is required to set a price at which they will purchase
the raw material from supplier in future as well with mutual agreement.
 Provide proper training and development session: This is also one of the strategy which
indicate that Amana Ltd should provide proper training and development program to its
employees in order to keep them motivated. The impact of which the overall efficiency
and productivity of employee will enhance and the cost of wastage of resources will
reduce (Jermsittiparsert, 2020). Hence, to maintain and control the labour cost at
workplace, the company should adopt and implement this strategy.
 Raising prices of products: The increase in the price of goods and services will
ultimately increase the sales revenue of the company which helps in the overall budget
maintenance. As per this strategy, the company is required to do proper market analysis
with the help of which company such as Amana Ltd can identify the rate through which
they can enhance its prices of products as well as services. However, this strategy can
affect the company in term of customer loss.
PART B
Comparative analysis of two options for Amana Ltd
Option 1: Own online shop setting
Particulars Amount in £
No of units will be sold by company
(Guaranteed)
£2000000
(100000 * £20)
Less: Relevant costs associated with option
setting up own online shop:

Cost of setting up delivery network -150000
Cost of upgrading current website to handle
large volume of sales
-50000
Salary of fulltime programmer -35000
Profit generate from setting up own online
shop
1765000
Option 2: Sell on Amazon
Particulars Amount in £
Guaranteed sales of 65000 units 1300000
(650000 * 20)
Less: Relevant cost associated with option
sell on Amazon:
Amazon fulfilment fees -50000
Profit generate from sell on Amazon option 1250000
Recommendation to Mr Amana
After analysing the two option for going online, it is identified that the profit generated
from option one (setting up own online shop) is higher as compared to the profit generated from
option two (sell on Amazon). It is because profit from option one is 1765000 and option two is
1250000. Hence, on this basis, it is recommended to Amana Ltd that they should set up their own
online shop rather than dealing with the intermediary such as Amazon. It is because of the
following reasons:
 First reason is that the number of units that company will sell through own online shop is
higher than if they sell it through Amazon.
 However, setting up own website, maintaining delivery network is costly for Amana ltd
which they need not to bear in the case of second option.
 In second option, Amana need to bear only one cost that is Amazon fulfilment fees but as
the number of guaranteed sales in case of first option is higher than second. It is
recommended to company to adopt first option in order to go online (Al-Mawali and
et.al., 2018).

To critically justify the decision recommended to Amana Ltd, it is important that Amana should
understand the advantage as well as disadvantage of both option.
Benefits of setting own online shop:
 Fastest buying process: This is one of the biggest advantage of setting own online shop
to Amana Ltd. It is because it provides company to take fast orders of customer and
complete it quickly. This strategy is best to keep customers happy and satisfied
throughout the buying process.
 Access to customer information: In order to access the important information regarding
the customers such as customer order rate, highly preferred product etc. the setting up
own online store is best (Alhatabat 2020). It will also help the management of Amana to
understand the taste and preferences of customer.
 Affordable advertising and marketing options: Setting own online store provide the
company with the different options regarding advertising and marketing options. This
options are easily affordable to small and medium size organizations. Hence, setting
online store is highly recommendable to Amana Ltd in the present scenario. Fastest
response to customer query is also one of the benefit.
Drawback of setting own online shop:
 High cost: The high cost of setting own online store is a drawback for the Amana ltd if
they follow first option. It is because in case if the company fails to generate appropriate
return from this source, in that case the high investment in first option will vanish the
reputation of company (Alhatabat, 2020).
 Low sales during a site crash: In case of setting up online store, a site crash is the major
issue that Amana company will face. The impact of which customer unable to place an
order which ultimately result into the loss of order and lower sales revenue.
Benefit of selling through Amazon:
 Helpful in identifying the buyers all over the world: It means that, with the help of
selling the products and services through Amazon, company able to identify the

customers from all over the world. This will ultimately enhance the international
customer base for the company.
 Minimum cost: The strategy of choosing Amazon as an intermediary for moving the
business online, will help Amana Ltd to keep the markets working smoothly. Also, it will
help the company create share value and spread the name of company not only in
domestic but also in foreign countries (PHORNLAPHATRACHAKORN and
PEEMANEE, 2020). The company can save logistic or transportation cost.
Drawback of selling through Amazon:
 Massive competition: One of the major drawback of opting second option that is sell on
Amazon is massive competition. It means there are many other companies that involve in
the selling through Amazon to reach larger customer base. Hence, the high level of
competition is one of the major drawback for Amana if they opt for second option.
 Limited personalised options: This strategy provides very limited personalized options to
their customers (Tashakor Appuhami and Munir, 2019). The impact of which company
unable to assess the taste and preferences of its customer with the aim to enhance the
customer satisfaction.
CONCLUSION
This report in particular concludes that it is necessary and essential for a company to have
proper and efficient management accounting which supports the growth decisions of the business
and sue to this it becomes easy for the companies to compare the actual performance and the
future objectives of the company in particular. The above report has particularly illustrated
regarding the topic related to the requirement and the relevance of management accounting. The
report provides information regarding the monthly control report of the business and then further
analyses of the overall control report is done in the report above. The report also provides
information regarding the ways through which the aspects the company is lacking behind in can
be covered and taken care of.

REFERENCES
Books and journals
Alhatabat, Z., 2020. The impact of ERP system's adoption on management accounting practices
in the Jordanian manufacturing companies. International Journal of Business Information
Systems. 33(2). pp.267-284.
Al-Mawali, H. and et.al., 2018. Environmental strategy, environmental management accounting
and organizational performance: Evidence from The United Arab Emirates
Market. Journal of Environmental Accounting and Management. 6(2). pp.105-114.
Bartik, A.W. And et.al., 2020. The impact of COVID-19 on small business outcomes and
expectations. Proceedings of the national academy of sciences. 117(30). pp.17656-
DO, T. H. and et.al., 2020. Relationship between the management accounting information usage,
market orientation and performance: Evidence from Vietnamese tourism firms. The
Journal of Asian Finance, Economics and Business. 7(10). pp.707-716.
Harel, R., 2021. The impact of COVID-19 on small businesses’ performance and innovation.
Global Business Review. p.09721509211039145.
Jermsittiparsert, K., 2020. Factors affecting firm's energy efficiency and environmental
performance: the role of environmental management accounting, green innovation and
environmental proactivity. 670216917.
Jovanović, T., Dražić-Lutilsky, I. and Vašiček, D., 2019. Implementation of cost accounting as
the economic pillar of management accounting systems in public hospitals–the case of
Slovenia and Croatia. Economic research-Ekonomska istraživanja. 32(1). pp.3754-3772.
Pastore, R. and et.al., Differential Variance Analysis.
PHORNLAPHATRACHAKORN, K. and PEEMANEE, J., 2020. Integrated performance
measurement as a strategic management accounting approach: A case of beverage
businesses in Thailand. The Journal of Asian Finance, Economics and Business. 7(8).
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Portillo, J.E. and Stinn, J., 2018. Overhead aversion: Do some types of overhead matter more
than others?. Journal of behavioral and experimental economics. 72. pp.40-50.
Schuster, P., Heinemann, M. and Cleary, P., 2021. Variance Analysis and Control. In
Management Accounting (pp. 173-214). Springer, Cham.
Tashakor, S., Appuhami, R. and Munir, R., 2019. Environmental management accounting
practices in Australian cotton farming: the use of the theory of planned
behaviour. Accounting, Auditing & Accountability Journal.
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