Management Accounting Report for AMANA Ltd: Performance in 2020

This management accounting report analyzes the performance of AMANA Ltd, focusing on a monthly control report that highlights budget variances and the company's overall performance in 2020 compared to its original budget. It identifies areas of decline, such as sales units and increased material ...Read More

Management
Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
PART A...........................................................................................................................................3
Monthly Control Report of AMANA Ltd...................................................................................3
Report on AMANA's performance during the year 2020...........................................................4
Suggestions for improving the performance...............................................................................5
PART B ...........................................................................................................................................6
Analysis of decision to pursue business online...........................................................................6
Suggestions to set up AMANA's own website or proceed with Amazon...................................7
CONCLUSION ...............................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
Management Accounting can be defined as the procedure that involves measuring,
identification, observation, communicating and analysation of accounting records and other
financial information for the better execution to pursuit of an organisation's objectives and goals.
In includes the representation of financial data for the internal management purposes that is taken
into usage by top level management in strategic decision making process. It consists of product
costing, cash flow analysis, budget forecasting and trend analysis (Anessi-Pessina and Sicilia,
2020). The main purpose of the report is to highlight important concepts of management
accounting. This report includes analysis of tourists business of AMANA Ltd about report on
monthly control which reflect variances. Further, it also presents report on performance of
AMANA with its actual figures and original budget. The report ends with recommending the
better ways that help AMANA's CEO in improving the business performance and after that it
explains the plans to go online and decision on whether to start online business with their own
website or sell through Amazon.
PART A
Monthly Control Report of AMANA Ltd.
Budget is the best tool for tracking the financial condition and planning expenses
according to that, it also helps in allocation of earning to meet requirements. It can be defined as
calculation plan for specific time period which anticipates revenue, quantity of resources,
environmental impacts and expenses. It helps in intending all expenses from the available
resources. It allows organisations to oversees and help management in proper understanding the
upcoming needs of funds, whether business has enough financial resources to meet their
expenses or need to arrange them with outsiders and insider sources. Usage of budget help
companies in making more accurate decisions as it provides all financial resources in proper line
(Balakrishnan, Matsumura and Ramamoorti, 2019). It is helpful in numerous ways for
management as well as stakeholders as it sets long and short term objectives for sustainable
growth of business, helps in tracking money like expenses, revenue and cash flow from other
sources and maintains a proper or accurate accounting record. A budget variances is an
accounting concept which describes the condition in which actual costs are either high or low
than the standard cost. A negative and unfavourable variance is act an indicator of shortfall in

budget that might be occur due to loss in revenue or costs incurred higher than the expected
costs. Variances would occur due to internal as well external causes that includes human errors,
poor level of expectancy, change in economic condition and shift in business environment.
Original budget
(£)
Actual
(£)
Variances
(£)
Units 100,000 80,000 20,000
Selling price 25 20 5
Sales 2,500,000 1,600,000 900,000
Variable costs :
Materials 250,000 280,000 30,000
Labour 400,000 440,000 40,000
Overhead 150,000 120,000 30,000
Contribution 1,700,000 760,000 940,000
Fixed costs :
Warehouse rentals 200,000 170,000 30,000
Insurance 100,000 100,000 -
Full time warehouse supervisor
salary
50,000 35,000 15,000
Profit 1,350,000 455,000 895,000
Report on AMANA's performance during the year 2020
Performance of AMANA has been declined during the year 2020 in context of original
budget because there were significant declination has been reported in sales units by 20,000 that
has a main impact on low overall performance. Prices that are charged from customers in the
exchange of commodities was reduced by £20 per unit becomes a crucial reason for diminishing
sales by sum of amount £9,00,000. IN case of variable costs, cost of material is increased more
than the anticipated original budget by a specific amount of £30,000 and labour cost is also
increased more than original budget with a remarkable amount of £40,000. These two variable
costs has a vital effect on performance of AMANA in negative manner while overhead costs was
reduced by £30,000 that is good for business than the original budget. With reviewing the

variable costs and sales, there is a significant decrease has been observed in AMANA's
contribution by a sum of £9,40,000. The fixed costs consists of rent of warehouse that are
reduced by its original budget which help in saving £30,000, cost of insurance that is same as the
original budget which indicates no effect on performance of AMANA and a full time serving
warehouse supervisor's salary of £15,000 that is also cut down which affects the business
performance in positive manner. After, the analysis of sales and each small cost, there is a
significant short fall in the revenue of AMANA with respect of £8,95,000. Overall analysation of
information AMANA Ltd, there are some specific paths available that can improve and enhance
the performance of business comparing to its original budget, management just only needs to
maintain their budget and records flexible and simple that are easy to help everyone within
workplace and management can easily track revenues and expenses that must be accounted.
While maintaining original budget for a specific accounting period, management to get all
workforce involved that means all the departments want their requirements must be heard and
understood (Bertomeu, 2020). Management needs to be clear about their objectives and
organisational goals with purpose of predicting financial future. An adverse variance is reported
among the actual cost and budgeted cost, this happens because AMANA did not strictly follow
their original budget. They must make budget after analysing all the components and needs to
stick to it, this will help them in ensuring that there will be no over expenditure.
Suggestions for improving the performance
On numerous areas AMANA requires improvement and focus such as sales units as they
need to raise their units by selling more that can be done through online website that will be
beneficial for souvenirs, improved engagement of consumers on social media, find a travel
market niche and extent its network in B2B area. There is no need to cut per unit prices of
commodities, they must be stick to the original budget. It AMANA wants to invite and attract
more customers then they must reach their existing consumers first with some special offers and
packages that will encourage customer to leave on good review about their services, they can
also ask for their referrals (Dunuwila, Rodrigo and Goto, 2018). Management needs to reduce
variable cost to increase margin of profit. Organisation needs to maintain the same concern and
contribution as in original budget so that at least minimum return can be achieved, along with
that, they also needs to look after the fixed costs like rent is reduced by, it must be ensure that
rent should not increase. There are various ways that will help in increasing revenue in order to

compensate prolonged period from December 2020 to February 2021, they must follow and
adopt technologies as per the market trends to find the way through which they can grab
upcoming opportunities, organisation requires to change over virtual modes to connect with their
client for channelizing better communication. AMANA is running from last 40 years in tourism
sector but its CEO still needs to observe and focus on key areas such as other companies in US,
UK and Europe are now selling their souvenir online that increases competition in the whole
market. AMANA should have their focus on developing their own website or update current one
for attracting the customers and they must set up a better supply chain management system for
ensuring better delivery of product or services to the customers across US, UK and Europe.
Business needs to summarize whole budget and share it with everyone within workplace for
better decisions and plans to get flexible budget and establishing clear goals for each department
to accomplish desired objectives and achieve sustainable growth (Sutton, Mahama and Arnold,
2021).
PART B
Analysis of decision to pursue business online
As competition in the market is rising day by day in whole UK, US and Europe, there is a
requirement for AMANA to sell their product online and reach more and more customer without
any delay. If this organisation did not start their business activities online then they need to start
selling their souvenirs with the other different centres in which their sales would go in
diminishing stage. It happens because consumers finds better choices online, also they found it
convenient with comparative rates that simply indicates, costumers prefers purchasing goods
online more in comparison to offline. AMANA is taken into consideration closing of the
Brighton, Manchester city centre Birmingham city centre branches in terms of streamlining the
business operations for moving their half of their sales online. This is better for the whole
organisation in every aspect as they are saving their variable costs along with saving fixed costs
as well that will them in raising the profit margin of business. AMANA considering to start
business online is goods and needed decision as it helps in improving the goodwill among all
their customers and other tourists as well, this also facilitate their availability of 24*7 that will
help in managing grievances of customers promptly (Lee and Hageman, 2018). It would take a
very small amount of start and set up cost. After closing some of their branches if AMANA's

staff start working online then they can access their tasks from anywhere that leads in reducing
operational costs and they can focus on each sector in the international market that help them in
achieving growth and development. They become capable to compete with other companies
globally by developing their own website in aesthetic manner with high quality graphics and
product details with providing customers attractive offers and discounts or can also provide free
shipping on delivery of their products.
Suggestions to set up AMANA's own website or proceed with Amazon
After making the decision to start business online, now the important thing is to decide
that whether to start with own website and app or begin through the help of Amazon, this can be
done with analysing the given accounting information. It AMANA set up their own online shop
then they have to incurred the following costs with the sales guaranteed sales of 1,00,000 units
per year:
Cost incurred in setting the delivery network £1,50,000
Cost incurred while updating the current website to manage large volume of sales £50,000
Salary of full time IT programmer £35,000
___________
Total £2,35,000
___________
The above calculation shows the whole costs that incurred during the whole accounting
year with sales of 1,00,000 units that will generate £2.35 per unit cost.
The organisation is selling their products directly through Amazon as alternative source
that will have to incurred below calculated cost with the guaranteed sales of 65,000 units per
year:
Fulfilment fees charged by Amazon £50,000
As defined in the case, the business is lacking in controlling the prices on Amazon that
means Amazon implies their own labels with written remark as Amazon which shows that it
places orders with vendors for commodities, pay the amount of commodity and then sets rates of
product on its website according to the market with adding profit. It simply reflects that with
Amazon there are high chances of occurring loss to AMANA because this is the reason most of
the vendors suffers loss because they sold product at low price, on Amazon they provide return
policy for defected products and other policies as well that indicates that souvenirs could be

returned by the consumer (Miller, and Shawver 2018). AMANA's business is not secure if they
sell products online through Amazon as their they loose control over pricing policy and there is
also return policy is applicable and they can only make sells of 65,000 units. Amazon has one
drawback as it charges fulfilment fees from its vendors. On the other side, if AMANA sell their
product through their own website by incurring a total costs of £2,35,000 which also provide
guarantee to make sales of 1,00,000 units annually that make them earn £2.35 on each unit of
finished good is sold. Organisation have chances to run their business operations with
sustainability in long term because they have full control over pricing policy and other policies
as well through which they can sell souvenirs at different prices with providing various offers
and promotional discounts. This plan has guaranteed sales which implies that AMANA can also
increase their sales from this number according to their capability by availing services 24*7 as it
is expected sales (Moon and Wood, 2020).
With analysis of above two decisions, it can be concluded that AMANA can have more
benefits by selling their products online with setting up of their own website comparing to
pursuing business through Amazon. The reason behind this is if AMANA start with Amazon
then they have to face as a lot of competition on each commodity as there many different
vendors with something unique in their commodities and also there is lack of control that effects
profitability of AMANA as prices are set by Amazon which give AMANA very limited
opportunity to showcase and promote its brand. Although, there are some chances that AMANA
can earn high amount of profit with Amazon but then also they have to pay fulfilment fees. There
are numerous benefits by selling product with own online shop such as control over every small
thing prices, policies, contents and customers as they can target different customers according to
different cultures and other groups and provide them better services even after sales with
personalize emails and social media campaigns. With own website, they can easily find new
customers anytime, anywhere and even after business period. AMANA's website will also retain
sustainable consumers as satisfied customers will become their regular consumers. As per the
data provided it is clearly observed, that firstly, there is guaranteed sales of 1,00,000 units that
generates higher revenue along with reducing its overall operating costs such as wages and
salaries, rents and other services, elimination of these overhead costs would definitely lowers the
prices of final goods of AMANA which attracts more and more customers and their business

survive with competitive edge. So, AMANA should move with their own website as early as
they can (Muraina and Dandago, 2020).
CONCLUSION
From the above report about AMANA Ltd, which has two parts. In section A, there was a
preparation of the variances through the actual budget and original budget that is already framed.
Afterwards, it through light on performance of AMANA Ltd in the accounting year 2020,
depending on which the budget is prepared and variances occur. Report also incorporates
recommendations to CEO of following business on the key areas where they can improve their
performance. In section B, there was a brief analysis about decision of top level management to
pursue further business activity that involves selling online and report highlights major points on
which this decision is dependent that whether they set up their their own online website or sell
with the help of Amazon. Conclusion can be drawn that AMANA should begin selling online
from immediate effect to have a competitive edge in market. They should set their own website
for selling online as it provide them full control over website and its terms or conditions.

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