Management Accounting: Monthly Control Budget and Recommendations for Amana Ltd

This report covers the cost breakdown of Amana Ltd products so that it can maximise its profit. It includes a monthly control budget that expresses original budget, fixed budget and variances, preparation of performance report of Amana Ltd, and recommendations to the CEO of the company.

Management
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK ..............................................................................................................................................3
(a) Monthly control budget that express original budget, fixed budget and variances...............3
Preparation of performance report of Amana Ltd.......................................................................5
Recommendation to CEO of Amana Ltd ...................................................................................6
Part B. Whether Mr Amana should opt for go online store or setup their products on Amazon7
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Today's business world is full of uncertainties as there are many factors that affects the
operations of business. So it is needed to formulate the effective strategies that can be help in
anticipating changes for minimising the risk associated with them. Strategic planning and regular
monitoring of activities can be found beneficial in some cases. Every business enterprise wants
to maximise its profitability. In order to increase the profit of the company, it should control its
cost and prepare its budget in a very effective manner (Hiebl and Richter, 2018). However, the
pandemic Covid- 19 had striked all over the world that decline the growth of many industries.
Amana, a family owned business that is engaged in selling souvenirs in England. They mainly
focus on tourist and have different hotspot in England. As it was serving from 40years and
understood the business environment. This report will cover the cost breakdown of Amana Ltd
products so that it can maximise its profit. In addition to that, it will cover preparation of budget
and recommendation to the CEO of the company.
TASK
(a) Monthly control budget that express original budget, fixed budget and variances.
This project report will cover the budget, flexibility along with its variances. It is very
important to understood the monthly budget and how it can contribute towards the cost cutting of
products. In simple words, it is the blueprint that shows the financial figures that are utilised in
accomplishment of every business activity (Charifzadeh and Taschner, 2017). They are
formulated so that they can effectively allocate the available resources in a cost effective manner.
Business faces fluctuations in many circumstances that affects the cost of products. Budget
control involves the following steps.
 Establish actual position – Every organisations is opting some accounting system so that
it can record and maintain the income and expenses. Income and expenditure are
recorded against the budget code and that helps in enabling the budget holders to identify
the actual budget at any time. To know the actual position, the budget holder is needed to
collect the information available in terms of financial figures.
 Comparing actual position with budget - The second step in the process of budget
control is to compare the actual position with budget and if needed, corrective measures
are to be taken. The difference between actual position and budget is known as variance

and analysis of variance is one of the most important technique that is used to control
budgetary process (Kenno Lau and Sainty, 2018).
 Calculating variances – The third step in the budgetary control process is calculating the
variance. There are various factors that are responsible for variances such as fluctuation
in variable cost, raw material or labour cost. The change in one financial figure may
result in occurrence of variance.
 Establishing the reasons for variances – The reasons of variances are needed to be
identified and it is one of the most critical step that that budget holder needs to know
when to take the corrective measures. Variances can impact either positively or
negatively on the firm's operations. Some of the common reasons of variance may be
incorrect figures entered in system or delay in entering the information (Adilli, 2020).
 Take Action – Its the time to take action if the budgets are not according to pre
determined activities. The budgets can be controlled if corrective measures are taken. If
the actions are not taken then the company may suffer loss. Following is the budget of
Amana Ltd
Flexed budget – This budget changes due to change in the revenue. For example if the company
is earning profit of 15% of sales and company earned a revenue of $100000, then the profit will
be $100000*15%= $15000. This shows that the profit and other variable are depended of
revenue earned by company.
AMANA LTD
Monthly Control Report
Particulars
Original
Budget
Flexed
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%
Preparation of performance report of Amana Ltd
The above report helps in understanding and knowing the current performance of Amana
Ltd in 2020. The above table shows that how effectively company is using its resources and how
it contributed in making the company success. All the expenses are clearly budgeted but due the
Covid – 19 it had affected its sales unit that decline the performance of company. Following are
some steps that helps in identifying the company's budgetary report.
 Easily traceable cost- The budget involves all those cost which are easily traceable. This
helps in recording of transactions in monetary terms. It becomes difficult to express the
cost that are in non monetary form such as efforts of individuals working in company. So
while preparing a budget, it is needed to collect and ascertain the cost that are incurred in
the process of formation of product (Beuren, de Souza and Bernd, 2019). These should be
recorded in the accounts and that helps in preparing of budget. As the company is
engaging in savouries business for tourist and the budget is prepared for the yearly basis
and it becomes complex to forecast the demand due to dynamic nature of environment.
 Determination of high cost – It is needed to determine the task that incurs high payout
cost and that adversely impacts on the profitability of the company. These cost should be
identified and the management should try to reduce these cost in order to maximise the
profit. These costs are mainly responsible for declining the profits of company.
 Identify the costly area – There are various activities that incurs huge cost and it is
needed to minimise them so that company can enjoy higher profits. The cost structure
should be effectively drafted by the top authorities of company that allows the firm to

utilise its resources in an efficient way. Activities starts from buying raw material till
making them into finished goods (Matsuoka, 2021).
The above table of Amana Ltd shows a variance of 36% that reflects the improper calculation of
budget and the company had not done analysis of previous data of its sales. The main reason for
revenue variance is due to pandemic as it did not hike due to unavailability of tourists. The Gross
profit of company is also affected due to the increase in variable overheads. As the company is
not operating its business in pandemic but the fixed cost such as rent, insurance and supervisor
salary is ongoing that declines the net profit for the company. The company should try to
minimise its fixed expenses in order to minimise the cost per unit of product. The best way to
reduce the cost is to operate its machinery at 90% that yields higher profit and diminishes the
cost of product (Gandhi, 2021).
Recommendation to CEO of Amana Ltd
 The company should increase its sales so that it can generate higher revenue. Is is the
only one important factor that helps in the growth and expansion of business. Cost
automatically declines once the company operates at higher level. The budgets are
formulated on the basis of historical data and forecast the future demand of products.
 The company should placed their products on online platform too, that helps in reaching
the mass customer in a shorter period of time. This increases the awareness of brand and
by the use of technology it can target its audience in a customised manner.
 The CEO should monitor and control the cost that hikes the prices of product. It should
minimise the activities that adversely affects the performance of the company. It should
also focus on controlling the fixed expenses either by owing the property or paying less
rent. In case of pandemic, it have to shut down its operations which results in paying its
fixed cost.
 The CEO of company have to opt for digital channel that allows company to sell its
products online so that it can attract large number of audience and thus, results in
increasing sales. In case of another pandemic strikes, it will not much impact the
functions of company as it have other platform of selling its products. This eliminates the
risk of facing of such big loss and it can expand its operations too. There are various

platforms that allows company to display their products and customer can buy right from
their mobile phones.
Part B. Whether Mr Amana should opt for go online store or setup their products on Amazon
Every business wants to expand its business operations so that it can earn more profit and
generate higher revenue. The main aim of every business is to earn profit. As Mr Amana is
operating its business smoothly in Europe, United States and United Kingdom. But he wants to
expand its business by taking its products on online platform. But he is facing a complex
situation whether it should set up their own online shop or take the help of Amazon to display
and sell its products.
In the first alternative company can opt for closing some its branches and take their
business online As this will generate 50% of the turnover. As it can generate higher revenue for
the firm but will incur higher cost of investment. It will increase the website traffic of the
company along with incurs heavy expense such as delivery charges, sales return and risk of
product damage in logistics. This option will incur following expenses.
Improvement expenses of handling online websites - £ 50000
Salary of IT programmer - £ 35000
Expenses for system delivery - £ 150000
Total cost incurred – 50000+35000+150000 = £235000
The second alternative that the company is having, is direct selling of its products to Amazon. It
will help in generating a guaranteed sale of 65000 annually. But it have some limitations as if
some customer got damaged product then it should accept and return it back by paying its full
amount. The pricing are set over because Amazon charges its fee on every product sold. So
companies should set their prices by keeping in mind the commission charged by amazon. So th
company somehow lack of control over the prices of products and are limited by accepting the
products if customer do not accept the product. Following table show distinguish between setting
up of own online store and selling on Amazon.
Basis Selling on Amazon Setting up own online store
Reach Amazon is having larger It becomes difficult to reach

customer base and is most
popular platform that enables
customer to order the product
of their choice with hundreds
of variety. It had already
created its goodwill that helps
in selling the products of both
existing product and newly
launched. There are millions of
users who are active on this
platform. It is modern way of
shopping.
large customer base as it the
most time consuming process
such as it takes much time in
creating websites and
developing a trust in
customer's mind. As Amazon
had already created its
goodwill in the market so it
becomes easy to take
advantage of that rather than
involving in such a complex
task. So new establishments
takes more time in creating
goodwill in the market.
Cost Amazon will charge a nominal
fee and in return it will provide
a platform for their product to
display which helps in
generating more revenue. If
any seller wants to place their
products on Amazon, then it
will charge maintenance fee.
All the cost is controlled and
bear by the owner. He can
control its cost and the cost
incurred in setting up its online
shop. Expenses such as
creating websites, opting right
delivery channels, and provide
with quality products (Nwosu,
Aguh and Ezeanyim, 2020).
Expenditure Amazon will charge £ 50000
for placing their products and
becoming a seller on their
platform.
If company will opt for this
alternative then it will incur
£185000.
Data of Firm For a established company it
becomes easy for the knowing
and understanding the buyer.
It becomes difficult to recover
the data from a new enterprise.
The company will incur huge

cost in creating awareness in
public.
The above table expresses and elaborates the following steps.
 The company will incur huge amount as it have to set up its business from zero. For a pre
established company it becomes easier to ell products as people are already aware about
the platform. From creating a website till opting the right delivery channel helps in
developing the trust in customer's mind.
 There would be risk of data in case of company is selling its products on Amazon. By
availing the data , amazon can use this for their benefits as insights can be created by
collecting required data. In case of any termination of contract with the company, it can
use that for their benefit.
 As Amazon is a well known comp0any and it becomes easier for the people to buy
company's product. Million of people order from Amazon every day. Its main aim is to
provide with better customer experience and acts a bridge between seller and buyer. It
will cost £50000 to register itself on Amazon and guarantees to sell 65000 units annually.
This option can be availed by the companies who have limited source of capital and by
investing they gets assured of sales of 65000 units.
Thus, on the basis of above table it was recommended that Mr. Amana should opt for setting up
its own websites that enables in generating more profit for Amana Ltd. If it will produce more
quantity then there would be decrease in cost per unit. The profitability of the company can be
increased as it will incur a single time investment that yields higher profits. It should opt the
delivery channel wisely. It will help in securing its data too and it will help in creating an
insights of different customers so that it can provide with better customer experience (Kouvelis,
Pang and Ding, 2018).
CONCLUSION
From the above project report, it was concluded that for a firm's growth it is needed to
prepare effective budgets so that it can manage its expenses. The company should monitor its all
activities in order to create a balance between income and expenditure. It should minimise all its
expenses so that it can increase its profits. In addition to that, the CEO of Amana ltd should go

for commencing its business on online platform as today's business world is switching its
business to online platform that becomes easy for the company to operate its functions at their
fingertips. As it will reduce the cost per unit along with keeping the data safe and secure. Every
business organisation wants to earn more profit but it is needed to understand that lowering down
the cost can also contribute to earn profit. The company can set up lower prices as compare to its
competitors and can take the advantage of it.

REFERENCES
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