Management Accounting: Control Report, Performance Assessment and Recommendations for Amana Ltd

This report provides a control report, performance assessment and recommendations for Amana Ltd based on management accounting principles. It includes a cost benefit analysis of setting up their own online shop or selling on Amazon.

Management Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
PART A...........................................................................................................................................1
i) Preparing control report...........................................................................................................1
ii) Assessing Amana’s performance during the year2020..........................................................2
iii) Providing recommendations to Amana’s CEO on areas of improvement............................4
PART B............................................................................................................................................5
Advising the Mr Amana should set up their own or sell on Amazon.........................................5
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Management accounting is related with process of preparing reports about the
organizational operations so that considering monetary and financial aspects to make short &
long term decisions. It aids in helping the organizational to identify, interpreting and
communicating information to management so that relevant decision can be taken. In the current
era, it is highly important for organization to implement management accounting in the
operational practices so that competitive edge to identify and overcome challenges so that higher
profitability can be derived. The current report is based on Amana Ltd is manufacturing firm that
sells souvenirs to tourist. Present study will show control report by paying attention on original,
flex and variances. It will give emphasis on analyzing the performance of organization and
recommendation for improvement. Current study will concentrate on analyzing the decision by
considering all relevant cost.
MAIN BODY
PART A
i) Preparing control report
Particulars Cost per unit
original
budget
Flexed
budget
actual
budget
Varia
nce
Varia
nce in
%
Units 100000 80000 80000
-
20000
-
20.00
%
Selling price 25 25 25 20 0 0.00%
Variable cost
Materials 2.5 250000 200000 280000 50000
20.00
%
Lab-our 4 400000 320000 440000 80000
20.00
%
Overhead 1.5 150000 120000 120000 30000 20.00
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%
Contribution 17 1700000 1360000 760000
34000
0
20.00
%
Fixed overhead
Warehouse rental 200000 200000 200000 170000
20000
0
100.0
0%
Insurance 100000 100000 100000 100000
10000
0
100.0
0%
Full time warehouse
supervisor salary 50000 50000 50000 35000 50000
100.0
0%
Net profitability 1350000 1010000 455000
34000
0
-
25.19
%
ii) Assessing Amana’s performance during the year2020
Original budget refers to the road map which is formulated by organization through
estimating sales, variable & fixed cost so that proper ability to mange the overall operational
activities can become possible (Pavlatos and Kostakis, 2018.). Flexed budget shows the varies
h with change in the amount h of actual earned. It aids in getting the capability to compare the
budgeted and actual. From the evaluation of the presented budget it can be specified that
company is performing quite well. From the evaluation of presented budget it can be specified
that the difference has been computed by calculating the variance between budgeted and flexed
budget. On the basis of this it can be articulated that budgeted figures are good as compared to
flexed budget. The main reason behind this is difference between actual & flex selling units. In
addition to this, it can be identified that variable cost has been subtracted from the selling
revenue of obtaining the contribution. In addition to this, it can be identified from the evaluation
of the above provided information that there are few fixed cost as well which are incurred by
organization for having profitability.
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From the assessment of the above provided table it can be articulated that there are
several components which are shown in the above budget. It helps in assessing how effectively
an organization is performing in order to get the success. The above presented table is indicating
how business is deviating from its original budget. The variance has been computed by
subtracting the flexed from the original budget so that proper information regarding the
deviation can be derived (Cescon, Costantini and Grassetti, 2019). Control report basically
provides the insights regarding potential issues which could generate undue financial harm n on
the business. It aids in attaining significant details of the profitability which is obtained by the
business after conducting several variable and fixed expenditure. From the assessment of the
computed information related with company's operational activities so that significant insights
that contribute in boosting & hindering overall functioning of business can become possible.
Company's performance on the basis of the determined budget it can be specified that there are
larger number of expenditure which are incurred by firm in variable form. In addition to this,
there are fixed cost which are executed by the organization that is equivalent to the budgeted
figures. There is deviation in the variable cost which in the flexed budget as compared to
original due to change in the number of units. There is change in the number of units sold as per
the original and actual. It has caused the deviation in the overall performance of the organization
(Weetman, 2019). In addition to this, it can be evaluated that there is unfavorable performance in
the net profitability and contribution in the flexed budget as compared to the budgeted. It is
indicating negative performance reflection. On the basis of this, it can be said that there is
lacking of effectiveness in managing the cost so that profitability to accomplish organizational
objectives can become possible.
From the evaluation of the given table it can be recognized that the net profitability
earned as per the flexed is lesser than budgeted. It is reflecting that there is need to check the
overall processing of enterprise in turn ability to identify the cause for the prevailing
performance can be identified. In order to evaluate the actual performance of the specified
organization it is recognized that sales revenue is less which needs improvement by
implementing significant course of action. From the assessment it is signified that to make sure
that higher profitability there should be controlled over the variable expenses incurred by firm so
that details of gaining good liquidity to manage the overall functioning can become possible.
There is unfavorable outcome in sales revenue by 20% negative change whereas in the variable
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expenditure there is alteration positively. It is presenting lower expenditure as compared to
actual (Ameen and et.al., 2018). It is helpful in reflecting how well enterprise possessing ability
to monitor & control the cost. On the basis of the variance computed it can be mentioned that
there is declining of the net profitability by -25.19%. There is need to apply significant
improvement in order to have relevant functioning in the industry to maintain the competitive
advantages there is requirement to execute certain crucial measures so that appropriate ability to
ensure higher profitability & sustainability can be achieved.
iii) Providing recommendations to Amana’s CEO on areas of improvement
There are several areas which possessing the limitations in order to manage the
functioning of company (Massicotte and Henri, 2021). There are several components which are
required to be improved by organization for having relevant functioning. There are few
recommendations for Amana’s CEO which are a follows:
 It is suggested to the company to pay attention on having appropriate level of market
analysis so that significant details related with damned of product can be derived it plays
crucial role in getting the higher extent of accuracy in formulating budget so that proper
estimation of profitability can be derived. This aids in making fair evaluation of
expenditure that is required to be incurred for gaining effectiveness to manage the same.
There are larger number of aspects which are needed to be estimated properly in turn
accurate analysis of the financial performance of the business can be done.
 This is advised to the organization to concentrate on having proper implementation of
budgetary control systems (Bedford and Speklé, 2018.). It can permit the business to
formulate strategic planning for operational activities. For accomplishing the
organizational goals it becomes essential for firm to have systematic planning by
applying highly suitable kind of budget so that achieving information which can allow
recognizing hindering & boosting factor can be exerted. It allows to get the information
which is largely helpful in making sound decision that aids in achieving effective
performance. Controlling and managing the functioning of the enterprise in greater
smoother manner becomes possible.
 Implementing management accounting system such as inventory, price optimization, cost
accounting and job costing. There are several types of areas which require significant
extent of control in turn proper estimation of functioning to accomplish various
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objectives can become possible. For this purpose inventory management can aid in
ensuring that there is proper level of stock available by avoiding over 0r under stocking
situation. Price optimization system is helpful in meeting the business goal of having
higher profitable margin which by recognizing positive response providing strategy.
There should be application of cost accounting so that finding variance by comparing
actual with budgeted gives insights of irrelevant component which need to be eliminated
for having proper results. Job costing play role of ascertaining contribution of particular
task in achieving success. This provides assistance in ensuring that optimum utilization
of resources is exerted. The main fact underlying behind suggesting this course of action
is to ensure that greater level of functioning to by having proper utilization of resources
to meet business goals by managing & controlling the available resources can become
possible.
 For improving the lacking areas prevailing in the specified organization it is suggested to
the enterprise to incline the number of units demanded in the market by taking certain
essential measures such as marketing & advertising. It can be done by properly by
managing the lacking areas so that greater ability to decline cost of goods sold for
enhancing profitability (Rikhardsson and Yigitbasioglu, 2018). There are few other
planning tools which can be implemented by mentioned firm for improving the business
activities such as key performance indicators, corporate governance, bench marking and
balance score card. The main reason behind suggesting such curse of action is to have
fair standard performance setting to get accurate results of deviation for estimating actual
overview of both financial & non momentary performance. It contributes in improving
the mentioned lacking areas and boosting functioning of business becomes possible.
PART B
Advising the Mr Amana should set up their own or sell on Amazon
There are two options available to the organization which can be taken to considerations
so that higher profitable option can be chosen. In order to get the results cost benefits analysis
can be conducted for having depth information regarding the cost and benefits exerted by
business so that relevant option which can provide higher profitability can be adopted. (Cost-
Benefit Analysis, 2021) The cost benefit analysis provides accurate details regarding the project
so that sound decision by having all factors into consideration can become possible.
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Own online shop
Particulars
(Amount
£ )
cost
Cost of setting up delivery network 150000
Cost of upgrading current website to
handle large volume of sales 50000
Salary of a full time IT programmer 35000
Total cost 235000
Total benefits
Selling units 100000 2000000
Cost benefit ratio 0.1175
From the above provided table it can be articulated that there are several factors which
can be taken into consideration by organization but one of the essential aspect is the related cost.
For having own online shop there is requirement to concentrate on incurring such level of
expenditure like upgrading website, paying salary to IT programmer, etc. This will lead the
enterprise to get the total benefit of 2000000. On the basis of this, cost benefit ratio derived is
0.1175. From this financial analysis it can be said that benefit from this particular decision will
this much more than the expenses incurred.
Selling on Amazon
Particulars
(Amount
£)
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cost
Amazon fulfillment fees 50000
Total cost 50000
Total benefits
Selling units 65000 1300000
Cost benefit ratio 0.04
The above illustrated table regarding the cost benefits analysis regarding selling
products on the Amazon to avoid expenses like paying salary, etc. In this case, there is only
expenditure of paying expense as fees of Amazon. The benefit from this course of action will be
0.04 as the number of units sold from this online platform is 65000. On the basis of this, it can
be stated that cost benefit ratio for the current shown case is 0.04 which need to be taken into
evaluation so that strategic decision can be made.
On the basis of the both the option' cost benefit ratio it can be specified that selling from
own online shop is highly beneficial than choosing Amazon. The main reason behind this is to
get the ability to assess that how much benefits will be ascertained in respect to the incurred
expenditure. For selling products on online shop there are few larger expenditure which are
required to be incurred for obtaining this specified level of the benefits. There will be demand of
100000 which is greater than the outcome derived from the other option articulated. There is as
well indication that above than 65000 there can be potential sells. It does not give the surety of
potential revenue only 1300000 is given. On this basis it can be identified that there are several
factors which influences the demand and supply of product so that making appropriate decision
by relying on total cost and benefit associated with particular decision becomes essential. There
is higher cost and benefit via selling product through having own shop rather than offering on
Amazon. Financial analysis conducted by implementing cost benefits analysis aids in getting
depth ability to obtain fair & accurate insights in turn relevant and worthy decision can be made.
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There are number of factors which are required to emphasize by business for having
proper estimation of the benefit which can be attained by applying into operational activities
(Boyd, 2022). For making the strategic decision it is important for the business to pay attention
on having relevant functioning about the factors that has influence on the smooth processing.
Cost benefit analysis not only gives details advantages & cost that is related with particular kind
of project (Maheshwari and et.al., 2021). It provides assistance in having information regarding
the feasibility regarding the project. This contributes in making relevant decision so that higher
profitability and sustainability can be obtained.
 It is suggested to the CEO to emphasize on conducting proper market analysis so that
insights related to prevailing trend can be identified. It will help in assessing the most
suitable method of purchasing for particular kind of product. The main reason behind
applying this suggestion is to get the accurate ability and feasibility to deal with
customer. In the current era, competition has increased which require firm to pay
attention on having competitive edge in manner of possessing proper method of
connecting with buyers. It can lead to inclination in customer satisfaction so that higher
demand of products in the market can be derived.
 This is recommended to the particular business to highlight the profitability margin
which is basically earned. It is as well important for the company to give attention on
the level of complexity of conducting particular operational activities. On the basis of
this it can be identified that conducting shop online is having higher complexity which
can lead to have greater amount of the profitability. By comparing both the option it can
be specified that operating own online shop is highly beneficial so that organization
need to focus on conducting in this manner.
CONCLUSION
From the above report it can be concluded that management accounting helps in
conducting effectual performance by having proper planning, organizing and controlling overall
operational practices. The current report has involved variance evaluation which indicates that
company need to pay attention on reducing cost for inclining profitability. Present study has
included recommendations for improvement such as application of budgetary control,
management accounting systems, planning tools like KPI, corporate governance, etc. cost
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benefit analysis has been executed for having appropriate ability to evaluate two options and
identified that own online shop is highly profitable.
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REFERENCES
Books and Journals
Ameen, A. M. And et.al., 2018. The Impact of Management Accounting and How It Can Be
Implemented into the Organizational Culture. Dutch Journal of Finance and
Management. 2(1). p.02.
Bedford, D. S. and Speklé, R. F., 2018. Construct validity in survey-based management
accounting and control research. Journal of Management Accounting Research. 30(2).
pp.23-58.
Boyd, K. W., 2022. Cost Accounting For Dummies. John Wiley & Sons.
Cescon, F., Costantini, A. and Grassetti, L., 2019. Strategic choices and strategic management
accounting in large manufacturing firms. Journal of Management and Governance. 23(3).
pp.605-636.
Maheshwari, S. N. and et.al., 2021. Principles of Management Accounting. Sultan Chand &
Sons.
Massicotte, S. and Henri, J. F., 2021. The use of management accounting information by boards
of directors to oversee strategy implementation. The British Accounting Review. 53(3).
p.100953.
Pavlatos, O. and Kostakis, X., 2018. The impact of top management team characteristics and
historical financial performance on strategic management accounting. Journal of
Accounting & Organizational Change.
Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
accounting research: Status and future focus. International Journal of Accounting
Information Systems. 29. pp.37-58.
Weetman, P., 2019. Financial and management accounting. Pearson UK.
Online
Cost-Benefit Analysis. 2021. [Online]. Available through:
<https://www.mindtools.com/pages/article/newTED_08.htm>.
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