Management Accounting: Budgetary Control Report and Recommendations for Improvement

This report discusses budgetary control and variance analysis for Amana's company, along with recommendations for improvement. It also analyzes the performance of the organization during the year 2020. Additionally, it suggests moving towards online sales through own online shops.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
PART-A...........................................................................................................................................3
1) Preparation of monthly control report showing flexed budget, original budget, variances-...3
2) Report showing performance of the organization during the year 2020-................................4
3) Recommendation to the CEO of Amana's CEO for making improvement-...........................6
PART B............................................................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Management accounting can be defined as an accounting practise which is used by
organizations in order to drive better understaffing to management so can make more drastic and
rational decisions. The report is aimed to discuss different notions such as budgetary control and
variance analysis, at the same time, some sets of recommendations are supposed to be extended
in attempt to hike the organizational performance. At the end of the report, a severe comparison
would be made between the available strategies for the organization and making an intensive
comparison so can guide the decision of Mr. Amana (Shefren, et. al. 2021)
Management accounting is having its great role in the installation of efficient
management at any organization. As it could be deciphered in the case of Amana's company
where it was intended to abide with pre intended outcomes but could not succeed and ultimately
ended up with sort of loss generation. The report will be discussing these all elements to the
fullest extend substantiating with the undertaken case.
PART-A
1) Preparation of monthly control report showing flexed budget, original budget, variances-
For the organization of Amana the budgetary control report is being prepared using the available
data as below-
Items Cost per
unit
Original
(£)
Flexed (£) Actual (£) Variance Favourab
le or
Unfavour
able
Units 100000 80000 80000
Selling
price
25 25 20
Revenue 25 *
100000 =
2500000
80000 *
25 =
2000000
80000 *
20 =
1600000
400000 Unfavour
able
Variable
costs:
Material
s
2.5 250000 200000 280000 80000 Unfavour
able
Labour 4 400000 320000 440000 120000 Unfavour
able
Overhea
d
1.5 150000 120000 120000 0 -
Contrib 17 1700000 1360000 760000 600000 Unfavour

ution able
Fixed
Overhea
ds:
Warehou
se rental
200000 200000 200000 170000 30000 Favourab
le
Insuranc
e
100000 100000 100000 100000 0 -
Full time
warehou
se
Supervis
or Salary
50000 50000 50000 35000 15000 Favourab
le
Profit 1350000 1010000 455000 555000 Unfavour
able
Above in the index the budget has been prepared for the organization using both actual
and original data. With this respect, it can be summarized that the both original and actual
budgets are showing sort of predictions which were made to bring better financial planning
(Ohiaeri, 2021)
The variance calculations made above shows that there are some variances which were
not looking in favour of Amana's company. It is facing severe issue since the profit generation
ability is also moving to the negative direction. There was requirement to perform in more
lucrative manner so can pave the way forward.
2) Report showing performance of the organization during the year 2020-
From the analysis above it can be summarized that in the last year the performance of the
organization has been quite shuffling. There are a lot of areas where need of improvement can be
experienced.
It can be analysed for the budgetary control report and variance calculation that the
performance of the company has been quite vulnerable. There may be number of reasons behind
this outbreak yet the fact can not be ignored that the operational efficiency of the company did
not perform as it was intended to be. The rising prices of row material has caused it higher cost
of production. Since the pandemic brought some drastic situations to the company and due to
failure of supply chain there have been higher cost of such means of production.
When the variances were calculated using both actual and budgeted data, it was found the
organization was not even able to generate profit, the relative data is showing that there is

unfavourable difference between both actual and budgeted figure. The majority of variances are
showing disagreement with the performance in the year. But the rental of warehouse had been in
favour which shows that the company has faced perilous situations in term of its implementation
of plans and strategies.
In the original budget the net profit was supposed to be around 1350000(£) for the year
but in actual it has shown sort of negative performance and the company has generated lose of
895000(£). On monthly basis the occurred loss was 7458.33(£), it is enough testimony that there
had been some perilous notions in the company which drove it to generate these negatives.
There are some areas where organizational performance has been as good as it should be. Since
majority of indecators are shwoing negative trends which signifies that the unfavourable figures
are more than the favourable figures. The company has been low performer through the year and
it can be summarized by analyzing the operational data.
The cost of material per unit was 3.5 in actual, whereas it was supposed to be 2.50 (£)
the organization faced severe challenge in procurement of row material which had not only
impacted the cost element but also led it to be in negative. Due to improper management of row
material acquisition the company has bearded additional cost of material. The same has
happened with range of different areas of operations (Boyns, 2021)
On the basis of the variances it can be seen that there is negative figure of sales variance.
It shows that the organization faced failure in term of its sales. The intended sales was 100000
units which has been quite lower and in actuality it has sold just 80000 units which somehow
toppled its sales revenue and overall performance ability got toppled.
On the other hands, it is being deciphered that the contribution was also not in favour so
the company has occurred more variable cost than intended which was behind its poor
performance. In the year, it has generated more overheads than budgeted cost. There was
difference of -940000(£) so it can be seen that in term of managing and controlling variable cost
the company has been far behind than the standard plan.
The salary paid was also reduced which can be taken as a serious issue, it might be due to impact
of Covid-19 but during the year 2020 it led organization to be less affective. It brought
favourable outcomes to the company but could have impacted operational efficiency in negative
direction. The decision of reducing the selling price can be taken as a negative decision. Since it

was supposed to keep it aligning with the planned or budgeted plan. But due to impact of Covid-
19 the decision might be made to topple the prices in order to hike sales (Ayorekire, 2018)
This decision of the company did not favour it and ultimately caused it lower sales and
lower revenues. It fetched negatives in bot ways. On the basis of the decision it would be fair
enough to articulate that the organizational efficiency has been lower and quite disappointing in
the year which had pointed out its poor areas.
3) Recommendation to the CEO of Amana's CEO for making improvement-
On the basis of the analysis made above it can be concluded that the performance was not
as good as it was intended to be so keeping the loose performance of the organization there are
some suggestions for the management so can go for betterment and enhancement in its overall
operations.
There is strong need to work on the management and control of overheads. Since with the
progress of time, the organizations are more likely to generate more overheads. The share of
overhead in the total cost is being growing with the progress of time. Here, the management of
the firm are recommended to install sort of new technique to manage and control the overheads.
It would somehow give it edge and would enable the organization in enhancement of revenues.
As it was found, in the year 2020 the overheads were running over the intended amount. It can
not be bearded by the company (Mohamed, 2022)
At the same time, the variance shoring contribution was also negative. There is need to
work on escalation of sales. As it was intended that around one lac units would be sold but in
reality it has just sold 80000 units. Which might have caused it negative repercussions and it has
generated sort of negative contribution. With this respect, the organization is recommended to
work on its operational efficiency. There are rigours requirements to manage the sales along with
its selling price. The management may go for better promotional strategies so can fulfil its
requirements in term of profit generation.
The warehouse costs had been quite higher which was totally unintended and which did
not only impacted the profitability but also brought sort of negative impacts on operational
performance. There was need to predict it as appropriate as much possible but it could have gone
wrong. It is recommended that there must be a fully fledged plan to manage the warehouse cost
or any such cost which can not be controlled intensively (Dauda, 2019)

It was experienced that in term of management of row material, labour etc. the
organization accomplished a great control. So it would not be unfair to articulate that these costs
could have been controlled to more intense manner. Keeping this notion into focus, the entity is
recommended to have more inclination to these costs and may go for in-depth scrutiny in order
to bring hyper control and can minimize it to the fullest extent.
PART B
Mr. Amana a businessman who is engaged in offline sales of products is planning to
move towards online sales by selling 50% of production online. Online business is fast growing
and profitable platform of modern business. Online business enables company to gather
information about customers and their behaviour which would help organization to make
necessary changes in products to improve customer experience. This platform also reduces
marketing cost of company and exempts company from geographical limitations and attract
international clients (Taher, 2021). Along with benefits there are some drawbacks of online sales.
This reduces physical interaction with customers and initial cost of implementing online business
is costly. The online business would enable Amana to increase its sales volume and to increase
profit margin. In initial period this method may be costly but cost can be recovered over time by
reaching more customers and building strong and effective customer relationship by providing
online after sale service. The increase in competitive demands for both online and offline
business to increase market shares and profitability. Online business will enable company to
expand its business globally and enhance customer base. There are two alternatives of moving
into online platform.
Alt. 1 Cost through their own online shops
Particulars Amount (in £)
Cost of setting delivery network 150000
Cost of up gradation of current website 50000
Salary to IT programmer 35000
Total cost 235000
Guaranteed sales 100000 (units)
Cost per unit (235000/100000) £2.35

Alt. 2 Cost of selling through Amazon
Particulars Amount (in £)
Amazon fulfilment fees 50000
Guaranteed sales 65000 (units)
Cost per unit (50000/65000) £0.77
There are two methods of selecting project: financial considerations and non financial
considerations. Financial considerations includes mathematical or quantitative aspects which
affects the selection of appropriate project. Non financial considerations are qualitative factors
that are to be considered before selection of project. Financial consideration consists of various
techniques such as benefit/cost ratio, net present value, interest rate of return, opportunity cost,
payback period and discounted cash flow (Project selection methods, 2022). Non financial
considerations includes customer relationship, organizational strategy, etc. which doesn't include
any quantitative aspects. Both the aspects of selection will be considered before coming at any
conclusion regarding selection of appropriate alternative for Amana to move into online mode of
sales.
Financial consideration: Through financial consideration it can be analysed that per unit cost of
selling products through amazon is less than cost incurred by own online shops. The selling units
of own online shops are more than that by selling through amazon. But there is potential of
increase in selling of units through amazon depending on demand. This means that if there is
increase in demand for products of Amana on amazon then volume of sales through amazon will
also increase that is cost per unit will decrease according to increase in sales volume (Zwikael
and Meredith, 2019). As per the quantitative scenario it will be beneficial for company to move
towards online sales through amazon. The difference in per unit cost of both alternatives is £1.58
(2.35-0.77) which is favourable if sold through amazon. On the other hand the volume of sales is
more in own online shops by 35000 (100000-65000) this encourages to sale through own online
shops. But it is mentioned that company has potential of increase in sales volume through
amazon if there is increase in demand. It can be assumed that there may be increase in sales

volume which ultimately suggest to choice 2nd alternative as increase in sales will decrease per
unit cost.
Non financial consideration: Before taking any decision it is essential to look into all the aspects
that may impact the decision. In accordance to non financial aspect it is better to move into
online mode of sales through amazon but every coin has two sides (Alvarenga and et.al., 2018).
The another aspect of reaching a decision is qualitative aspect. Sales through amazon will
adversely affect the control over pricing and return policy of company. There will be lack of
control over price of product as price may be set by amazon and company has to agree with the
same as it will enter into contract. The return policy of company will also be affected through
this alternative. The company will not be able to build direct relationship with its customers if it
sells its products through amazon and this may impact its future operations as building and
maintaining strong customer relationship is very essential for an organization.
From above, it can be recommended that company is required to ascertain which
consideration is more beneficial for sustainable growth and development of business. For the
long term profit and development of business it will be better for company to select first
alternative i.e. set up its own online shop (Xue and et.al., 2020). In the initial period it may be
cost effective but when the demand for product will raise it would ultimately reduce per unit cost
to company and it will also ensure control over price and return policy. Company will also be
able to build direct relationship with its customers and would be able to understand needs and
preferences of customers.
CONCLUSION
The project is related to management accounting which includes control report showing
original budget, flexed budget and variances. Through preparation of these budgets Amana's
performance can be evaluated that is what are the areas where company is required to improve.
The report included recommendations on areas where company is required to improve itself. The
second part of project was about the advantages and disadvantages of online business and
whether it is beneficial for Amana to move towards online business. It also highlighted two
alternatives for company to move online and analysis on both alternatives. At last there was
advice regarding selection of appropriate online alternative for company.

REFERENCES
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Ayorekire, M., 2018. Budgeting and budgetary control in non-governmental organisations: a
case of Infectious Diseases Research Collaboration (IDRC).
Boyns, T., 2021. Organizational change, budgetary control and success and failure in Formula 1:
Rubery Owen and British Racing Motors, 1947–1977. Management & Organizational
History. 16(3-4), pp.204-227.
Dauda, H., 2019. Examining the Role of Budgeting and Budgetary Control in Achieving
Objectives of Business Organisations.
Mohamed, A. I., 2022. The impact of budgetary control on manufacturing firms' financial
performance Mogadishu-Somalia. NeuroQuantology, 20(6), pp.4741-4755.
Ohiaeri, N. V., 2021. Mainstreaming Public Expenditure Budgetary Control Connectivity With
Economic Growth of Nigeria.
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AMONG SMES IN THE KLANG VALLEY, MALAYSIA. Electronic Journal of
Business and Management. 6(2), pp.1-17.
Taher, G., 2021. E-commerce: advantages and limitations. International Journal of Academic
Research in Accounting Finance and Management Sciences. 11(1). pp.153-165.
Xue, J. and et.al., 2020. The impact of project manager soft competences on project
sustainability. Sustainability. 12(16). p.6537.
Zwikael, O. and Meredith, J., 2019. Evaluating the success of a project and the performance of
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Project selection methods, 2022. [Online]. Available through:
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