This report analyzes the efficiency of Amana Ltd. for the accounting year 2020 and provides suggestions for improvement. It also discusses the assessment of whether Amana Co. should set up its own online store or sell through an existing platform.
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ACCOUNTING
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Contents PART A................................................................................................................................................3 Represent a monthly control report that shows the original budget, flexed budget, and variances....3 Assess the control report and analyze efficiency of the Amana Ltd. For the accounting year 2020. .4 Provide some suggestions to Amana’s CEO for improving the areas................................................5 PART B................................................................................................................................................6 Elaboration on the assessment on whether Amana Co. shall go for setting its own online store or should made an acceptance to go online............................................................................................6 CONCLUSION....................................................................................................................................9 References..........................................................................................................................................10
Introduction The following report looks into the capability of Amana ltd. for the accounting period of 2020 and also finding out the misconceptions that it has performed in its activities. In addition to this, it also highlights the variances that have taken place in the original data and the flexible budget report with the proper recommendations and suggestions(Kudlák, Urban., 2020).Along with this, the report has also stated the concerned areas that needs improvement. Basically, it can be said that this report talks on the variances and methods to control such deviations by providing the valuable insights for each item. Additionally, It also throws light on how the gross profit of a firm affects the net profit. Furthermore, it tells the benefits and drawbacks associated with setting up the own online business and selling the product via existing online platforms. PART A Represent a monthly control report that shows the original budget, flexed budget, and variances. The monthly control report shows the company’s operational and financial performance on monthly basis. These reports help the company in the assessment of the cost, activities and production. It is a brief as well as the comprehensive approach, that lists the major activities and the objectives for the next month. This can help in the progress and smooth functioning of a business enterprise. Original Budget: It is approved at the starting level for the budget period. The budget of this kind contains the adjustments for all the types reserves, carry- forward amounts, allocations, transfers, and other authority changes applicable to the budget period. Flexed budget: It is budget that changes or adjust with the variation in the volume or activity. This is considered to be the most useful kind when compared to the static budget(Lau, Scully and Lee., 2018). With the changes in the cost and activity, the flexible budget will adjust because it involves the variable rate per unit of an activity instead of the fixed amount. It is the most effective mechanism to measure manager’s efficiency. Variance budget: This budget report helps an organization in determining the reasons for the deviations. In short, this report describes the instances where the actual costs differ to the standard costs. Below is the monthly control report of Amana ltd. For the year 2020- AMANA LTD Monthly Control Report
Particulars Original Budget Flexed BudgetVariancesVariance (%) Revenue25000001600000-900000-36.00% Less: Cost of Goods Sold800000840000400005.00% Raw Material2500002800003000012.00% Direct labor4000004400004000010.00% Overheads150000120000-30000-20.00% Gross Profit1700000760000-940000-55.29% Less: Non- operating / Fixed Expenses 350000305000-45000-12.86% Warehouse rental200000170000-30000-15.00% Insurance10000010000000.00% Full time Warehouse Supervisor salary 5000035000-15000-30.00% Net Profit1350000455000-895000-66.30% Assess the control report and analyze efficiency of the Amana Ltd. For the accounting year 2020 The above prepared report shows the efficiency of Amana ltd. For the financial year 2020. The report represents the evaluations represents the productive capacity of the estimated tasks and activities of Amana ltd. It also portrays on how this company has coordinated with the variances in flexed budget and how it has planned the expenses and income to assist the company in order to determine the performance of its business enterprise. The various step that a company can take for the purpose of bringing good results are as follows- Identifying the areas that involves high cost- A company shall examine those areas in which it has to pay high cost. It shall adopt a better measure for the performance of task by minimizing the costs. The business organization must cut off the unnecessary expenses related to the activities that are not mandatory to perform(Tekathen and Dechow., 2020). Taking all these measures can guide a company in reducing its expenses and generating more income. Keeping track on the financial goals- Along with controlling expenses, a budget is really important as it helps in providing a ground on whether a company is able to achieve its fiscal goal or not. When a company creates a budget, it sets boundaries on
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the financial behavior so that the business can stay on track and achieve its desired goals in terms of money as well. Control on spendings- By the preparation of a budget a firm can prioritize its activities. These priorities help the businessman or the owners of a company to get high profits. The values and figures in the table reflects those important areas on which the Amana Ltd need to work and bring improvement in the performances. The above calculated numeric values give the clear representation of the variances. There are grounds where the company has not attained according to its original budget i.e., the actual results obtained are lesser than that of the original one. The various areas can be listed as following: The very first particular that can be seen in the table is of revenue which is the major income for any company. The report shows the difference of around 90,000. The actual sales are less than the original budget. This is not at all the positive approach; a business firm shall adopt for some efficient measures for increasing sales rather than paying for the expenses. (Stout., 2018). Another area is the cost associated with the goods sold, this includes raw material, direct labor, overheads. A cost linked with all these items has increased to 40000 for the accounting period 2020, when compared with the original budget. Thus, the gross profit ascertained is 76000 and the difference that it holds is of 94000. This reflects that the company is not able to control its expenses and increase its sales, which can surely lead to the negative consequences that Amana Ltd has to face. The last row in a table that pictures the amount of net profit for 2020 which is 4,55,000. And the variation is of 8,95,000 which is in negative. It portrays that the company is not taking preventive measures to control its expenses. The decrease in the net profit is seen due to the decline in the gross profit. This means that the company is spending more on its expenditure and is not focused in the profit and revenue generation. For controlling all these factors, a firm shall formulate the proper planning policies and take various alternatives. Provide some suggestions to Amana’s CEO for improving the areas For the first area which is of revenue the company must increase its sales by making good sales strategies and make long term policies which are nearly connected with the marketing. Amana ltd. Can adopt for the value- based selling techniques as this mechanism are based on the value that a customer experience with the usage of a specific product. This business must observe the customer’s business model very deeply so that it can meet the requirements of the audience. It should have a close look on the pricing strategy of its competitors. Amana’s CEO should take the effective cost control measures in order to prevent the unnecessary expenses. It can bring the strong relationship with suppliers by paying invoices on time. This will help the firm to gain suppliers trust and the supplier can reduce some prices for the raw materials. It can also keep a track of day-to-day expenses as well as fixed costs (Gong and Subramania., 2020) . It shall make a good plan for the budget to achieve the desired goals.
Amana Ltd. must keep itself ready to meet the future uncertainties so that the firm could have alternative sources to overcome the issue whether related to the fiscal issues or the operational issues. Amana ltd. shall have a close look and try to lesser the operational costs related to the activities that are performed on the daily basis in a business enterprise. Because, as the case depicts it is very clear that the gross profit had an adverse effect on the net profit also. This is concluded because the company has incurred less operational expenses when looked at the original data. PART B Elaboration on the assessment on whether Amana Co. shall go for setting its own online store or should made an acceptance to go online. The provided case in reflects that Amana Ltd. is operating very smoothly and effectively in the United Kingdom based countries, Europe and United states. But, on the other side, Amana Ltd. want to sell its products and services through an online mode as well for increasing its sales revenue. All this is possible by shutting down the branches that are located in Birmingham, Manchester and Brighton. But it will be tough to do so. The two available options that Amana Ltd can go for is transferring the entire functioning of its business in an online manner and the other is by selling the goods and commodities through an existing online store Amazon. Supposing that all the branches of the cities have been closed and the business is shifted online, then it would definitely result in the decline of sales by 50 percent of the turnover. This will take place due to some of the fixed expenses that a business has to pay like delivery expenses etc. But if this condition gives a surety on selling 10000 units on a yearly basis. Then the total expenses would look like below mentioned- Expenses related to improving the online website = £ 50000.00 Payment as salary for a full- time IT programmer = £ 35,000.00 yearly Expenses incurred in delivery = £ 150000.00 Total costs = 50000.00 + 35000.00 + 150000.00 =£ 235000.00 The second option that is available to Amana ltd. Is of selling the goods and commodities in the well – known online website Amazon. This gives a guarantee selling 65000 units on the annual basis. The fess that the business enterprise would have to pay for shifting its business online is £ 185000 & the accomplishment money that it has to pay to amazon is £ 50000. Amazon is a well - recognized international platform that sells its products across the globe along with the online payment services to its audiences. From the above discussion, a difference can be stated between going online and selling products through the online mode. BasisSelling through amazonSetting up the own online
store Customer’s ReachAmana ltd. Can get good reach to its audiences if it sells its product through Amazon. Because it sells its product across the globe and is a good platform. In fact, it will be very easy by this mode to gain customer’s trust because amazon is the best online shopping platform and is widely preferred by the people. It might be really tough for Amana ltd. To make a good reach to the customers as it will have new presence in such platform. Audience would not be able to make trust on the newly stablishes website because of the frauds that have taken place in case of the online platforms.(Wang and Ni., 2020) Maintenance costThis option might not be considered appropriate as amazon can charge more from the retailers for the product recognition. This is suitable in this case as the website control will be in the hand of the Amana ltd. So, it will not have to pay any maintenance charge to sell the product. ControlIn this, the control will be totally in the hands of amazon’s owner so, the price of the goods and services can be controlled by them.(Matsuo and et.al., 2021) Control will be in the hands of Amana ltd. So, the prices of the commodities cannot be influenced by another website. ExpensesExpenditure incurred is just 50000 in this. This has high establishment cost as compared with that of selling products through amazon. DataAs it is easy to reach the customer because amazon has the existing data of its clients.(Yuan. and et.al.,2018). In this scenario, it will be a tough deal for Amana ltd. to collect the data because it has newly shifted for an online mode. From the above table representation on the basis of differences between the two the followings points can be considered. The choice of setting up its own online store is involving huge costs as compared to that of other option available to Amana Ltd. But on the same time, selling goods by Amazon can even lead to the data breach because there are many third party involved for delivering the products. Because in the company’s own website there is data security that remains with the company’s owner.
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Another thing that is clear is of maintenance cost and price influencing. When these two terms are considered and discussed then Amana ltd. might have to face the negative consequence that is of loss Therefore, from the above statements it can be found out that switching its store to the online platform is an appropriate option. Because looking on the biggest factor that is of data; which holds the sensitive details of customers and product. If this data gets leaked then it will be very complicated for any organization to collect it again. Customers are the foundation stone for any company and if the data breaches, then it would obviously result in the loss of customer’s trust and so the profitability indirectly. Considering another factor of expenses that it will have to pay for maintenance purpose is of 50000, so it will be better for the Amana ltd. to establish its own online platform to avoid paying such expenses on regular basis.
CONCLUSION So, it can be concluded from the above report that the company shall make less expenses to meet its desired profit goal. As the expenses of any firm can affect the gross profit and net profit of a company in both positive and negative manner. And it is also clear that how these areas affect the efficiency and effectiveness of a firm. Moreover, this report has also given the clear understanding on the profit for the financial year 2020 and the best possible method that a firm should go for to bring a decline in its expenses and earn a huge profit ratio.
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