Management Accounting: Preparation of Monthly Control Report and Amana's Performance for the Year Ending 2020

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
PART A.......................................................................................................................................3
PART B.......................................................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11
Books and Journals....................................................................................................................11

INTRODUCTION
Management accounting aids the management in carrying out their function of planning
& controlling in an effective manner (Han and et.al., 2020). Here the management makes use of
all the available information of both financial as well as non – financial nature to enhance the
overall organizational efficiency. Hence, management accounting is useful for the internal
purposes of the business as several prudent decisions are made on the basis of reports prepared
under it. The present report is based on one such aspect of the management accounting where on
the basis of actual results and original budget, the flexed budget would be prepared for the
Amana’s business and accordingly, the variances that have occurred between the actual results
and flexed budget would be identified. Amana’s business is one such business whose
performance have affected severely due to the implications of lockdowns resulting from the
pandemic Covid – 19 during the year 2020. Therefore, the performance of the business in terms
of units produced and sold has negatively affected as they are dealing in souvenirs for tourists.
Accordingly, the original budget becomes impractical to be compared with the actual results and
thus, the flexed budget have been prepared for the Amana’s business. In a flexed budget, the
figures of several expenses varies with the actual performance in terms of units produced and
sold while keeping many other expenses as fixed.
MAIN BODY
PART A
(i) Preparation of monthly control report to indicate original & flexed budget along with
variances
Items Cost per
unit
Original
(£)
Flexed (£) Actual (£) Variance Favourable
or
Unfavourable
Units 100000 80000 80000
Selling price 25 25 20
Revenue 25 *
100000 =
2500000
80000 *
25 =
2000000
80000 *
20 =
1600000
400000 Unfavourable

Variable
costs:
Materials 2.5 250000 200000 280000 80000 Unfavourable
Labour 4 400000 320000 440000 120000 Unfavourable
Overhead 1.5 150000 120000 120000 0 -
Contributio
n
17 1700000 1360000 760000 600000 Unfavourable
Fixed
Overheads:
Warehouse
rental
200000 200000 200000 170000 30000 Favourable
Insurance 100000 100000 100000 100000 0 -
Full time
warehouse
Supervisor
Salary
50000 50000 50000 35000 15000 Favourable
Profit 1350000 1010000 455000 555000 Unfavourable
(ii) Amana’s performance for the year ending 2020
Amana’s business is a family owned business dealing or selling souvenirs to the tourists
travelling to England and nearby destinations. Therefore, with the advent of pandemic and
resulting lockdowns in the year 2020, the performance of this business get negatively affected as
evidenced in the control report prepared above where it can be observed that the selling price of
the souvenirs have reduced leading to lower revenue earned during the year. Further, the units
sold has also been reduced because of lower demand due to travelling restrictions imposed by the
government. To deal with the reduced demand, the management may have reduced their selling
price, so that customer’s confidence can be increased. As a result of dual consequences, the
profit margins of souvenirs sellers has also reduced. The control report above is showing both
actual activity as well as the flexed activity of the business, where the profit margins actually
obtained through selling souvenirs at £20 per unit is found to be lower than the profit margins