Amana Ltd: Financial Performance, Budget Analysis & Enhancement

This report provides a detailed financial analysis of Amana Ltd for the year 2020, focusing on budget variances and offering strategic recommendations for business enhancement. Part A includes a monthly control report comparing the original budget, flexible budget, and variances, alongside suggestions for the CEO to improve the company's performance. It highlights the importance of flexible budgeting, originality of data, and budget variance analysis. The report identifies discrepancies between the original and actual budgets, particularly in revenue, cost of goods sold, and net profit. It suggests improving sales strategies, cost management, and budget planning. Part B evaluates the option of transitioning the business entirely online versus selling on Amazon, considering the costs associated with each approach, such as website maintenance, delivery systems, and potential revenue loss from closing physical branches. The report weighs the advantages and disadvantages of each option, including control over the business, subscription costs, competition, pricing, and customer engagement. Desklib provides students access to similar solved assignments and past papers.

Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
PART A...........................................................................................................................................3
Prepare a monthly control report that consists of the original budget, the flexible budget, and
the variations...............................................................................................................................3
For the year 2020, prepare reports for Amana Ltd based on the data given above.....................5
Make some suggestions for Amana's CEO on how to enhance the company............................6
PART B............................................................................................................................................7
From case given analyse whether Mr. Amana should consider make the business entirely
online or sell on Amazon. Take all the cost incurring into consideration...................................7
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
The following report considers the efficiency of the Mr.Amana company in the financial
year 2020, and in case of any misconceptions in the task of entity and any difficulty in
performance, produces guidance of the CEO of organisation in order to strengthen the working
of departments (Abdennadher, and et.al 2021). However, usually, this assists in the recognition
of the entity's various problems and then the organisation designs a strategy plan in order to
resolve this firm's disruption. It mainly focuses on the expansion of the business and overall
growth of business. In the second task of the following report, evaluates the steps taken by
Mr.Amana to make better the efficiency of the firm, as well as the manner in which Mr.Amana
establishes the business on the website of the company and sell the products on Amazon, both
theses factors leads to cost creation for the company. The report, on the contrary, engulfs the
manner of a budget. It includes analysis of budget and also considers the sum of costs and
incomes which are occurred over a particular period of time. It is specifically elaborates the
spending and savings of a person over a specific duration of time.
PART A
Prepare a monthly control report that consists of the original budget, the flexible budget, and the
variations.
The study concludes the planning of budget in context of innovation, flexible ness, and
variations. Initially it is important to understand the monthly control budget. In general sense, the
budget provides information which is based on data obtained from the organisation's payroll
workings, on the other hand overhead expenses shows the variations in spending and utility. The
entity's most important factor is to help the owner or the leader in examining the sample of
investments made by entrepreneur. Business concern may find it difficult to understand its
disclosure. This report also assist the entity's top department to create department's operating cost
maintenance and to start to evaluate the methods for cutting down business cost and expenses
(Aggarwal, and Garg, 2022).
 Flexible Budget: This budget also indicates the entity's performance or stages. In other
words, the budget explains the structure of price that does not changes. When a flexible
budget is prepared, it is a continuous adjustment with fluctuations of firm's expenditure,
and the advantage of this budget is that it assist in reducing the spoilage of money. In

order to change the market and environment of company, high opportunities and quick
performance are used.
 Originality of data: This budgeting technique helps in the examining of prior
expenditure and income data (Akbaralievich, 2021). This budget is prepared while
keeping expenditure in mind, and also helps in consideration of new income of the entity.
 Budget Variance: Usually, this budget helps in determination of the differences between
actual and original budgets, along with the discussion of current situation of the
enterprise and representing various advancements in the performance of the business. To
understand about the condition of the accounting year 2020, the workings of initial
budget, flexible budget and variation of budget are shown in the table given below:
AMANA LTD
Monthly Control Report
Particulars
Original
Budget
Flexible
Budget Variances Variance
(%)
Revenue 2500000 1600000 -900000 -36.00%
Less: Cost of Goods Sold 800000 840000 40000 5.00%
Raw Material 250000 280000 30000 12.00%
Direct labor 400000 440000 40000 10.00%
Overheads 150000 120000 -30000 -20.00%
Gross Profit 1700000 760000 -940000 -55.29%
Less: Non- operating / Fixed
Expenses
350000 305000 -45000 -12.86%
Warehouse rental 200000 170000 -30000 -15.00%
Insurance 100000 100000 0 0.00%
Full time Warehouse
Supervisor salary
50000 35000 -15000 -30.00%
Net Profit 1350000 455000 -895000 -66.30%
Working Notes:
Revenue-
Original Budget: 100000*25=2500000

Actual Budget: 80000*20= 1600000
Labour: 100000*4= 400000
Overhead:100000*1.50= 150000
Raw materials-
Original Budget: 100000*2.50= 250000
For the year 2020, prepare reports for Amana Ltd based on the data given above.
The productivity of Mr. Amana. In the accounting year 2020 is mentioned clearly in the
prior report. Briefing about the role and importance of decision making abilities in relation with
accounting in a organisation with incorporation on the depiction on the Mr.Amana (Boyce, and
et.al 2019). Activities which are expected, and reaction to the change in the flexible budget, how
it formulates the costs and revenues of the original data, and how it helps in the forming the
business. Generally, there are a different types of procedures that assist in analysing the work of
a firm budgetary report's consequent duty:
 Costs that are readily traceable: The main motive of making the budget is to provide help
in identifying the amount of money which is to be paid and after that making the budget
on the basis of future predictions. It will assist the business in knowing about the
misinterpretation in the place of work while maintaining the workplace to carry business
operations for meeting of the company's objective. In this report depiction of the financial
choices of an business, which it is making annually not on the monthly basis, and it may
sometimes based on evaluation of manufacturing expenses, material expenses and
expenses which occurred when the company is conducting the business. Moreover, it
makes a strategy in which money will be spend which is financially different from the
plan. It is maintained on the monthly basis by the entity because expenses in the
operating activities can occur anytime. While, running the business a firm should keep in
mind about budget of the company as well. Moreover, when an organisation spends on
the monthly basis then it helps the company it helps the organisation in evaluating the
money spending power more effectively and efficiently. The aim of the business is to
find out a plan to execute for the money saving and to decrease the outflows of cash and
expenses of the company (Hariyati, Tjahjadi, and Soewarno, 2019). Necessarily, the
business have to spend the money on activities which is beneficial to them instead of
wasting money wasteful activities and plans which is not fruitful for the company.

 Determining the high pay out cost: If an organisation wants to improve the way of doping
the operational activities, then it should definitely analyses all the areas where the
company is spending a lot of money and ensure to recover the tasks where the company
spend lots of money and which also decrease the profit margin and revenue of the
company (Harrast, 2020). The issue can be resolved by paying less on the activities for
tasks which is not needed and to focus on improving and generating more profit for the
company.
 Identification the areas of higher costs: The business is required to identify various
activities in high costs is involved, which is the main reason for increasing the poor value
of the income. Basically, the aim is to improve the structure of costs and making the
plans which are established and after that spending on the activities that can be proved
advantageous to the firm and does not have any risk involved with them (Hong, 2020).
The table represents the various types of aspects in which Mr.Amana. has to improve its
performance. It specifically states the concerned forecasting the original budget for the financial
year 2020, still the actual budget was lower as comparer to the original budget in number of
categories, which includes:
 Initially the income of the organisation and its primary budget are represented in the
above table it can show that the entity's revenue exceeds its actual budget. Generally, it
represents that the concern expects a huge revenue in the fiscal year 2020 but it has
received less as compare to its expectation, pointing that the organisation has to upgrade
its sales instead of paying out large amount of cost.
 Secondly, the following table represents that the company has made huge investments in
terms of cost which results in decline in gross profit of the company as compare to its
original budget.
 In the third case, it refers that sales and gross profit than the they were expected and this
results in lowering of net profit for the financial year 2020 as well. In year 2020, the
entity spends more amount of money on its operating expenses and it focus less on profits
which results in lowering of net profit (Jill, Wang, and Mattia, 2019).
Make some suggestions for Amana's CEO on how to enhance the company.
The department of company has to produce more income as any any company can make a lot of
money if it sells a huge quantity of goods in the market and reduces its expenses on its daily

operations. Poor sales is just one factor that impacts the entity's actual budget. When sales
decreases and cost increases the net profit of the company declines.
 Preparation of good budget plan: This is one of the most crucial step in creation of budget
in advance because before implementation of any plan an organisation should initially
develop the best strategy and then it should move forward to execute that strategy into the
business in order to attain the budgetary goal in an efficient manner (Lennox, and Wu,
2022).The chart represents that the entity did not constructs a proper plan and did not
operates in an efficient way, which results in making of less profits in the financial year
2020.
 Preparation of future scenarios: Each and every firm has to problems while taking out its
operations.
PART B
From case given analyse whether Mr. Amana should consider make the business entirely online
or sell on Amazon. Take all the cost incurring into consideration.
Mr. Amana feels that all his competitors are now e-selling their product to the customer
and he has to shut down its branches at Brighton, Birmingham city centre and Manchester. In
order to make its 50% online all these location branch are to be shut down. Closing these
branches will result in decrease in revenue and effect overall turnover of the company. However
in the era internet of things (IOT) there is real need of shifting business online. The second
option of selling through Amazon is also considerable option, since it has its own benefits.
Discussing both the options thoroughly (Nielsen, 2018).
Option 1- If Mr. Amana considers selling through own website following cost would be incurred
expenses for improving and maintaining the internet website = £ 50000.00
Expenses for the delivery system are £ 150000.00.
A full-time IT programmer earns GBP 35,000.00 per year.
Total costs: £ 235000.00 (50000.00 + 35000.00 + 150000.00).
Opportunity cost of shutting down main city branches Brighton, Birmingham city centre and
Manchester. This closing will effect 50% of revenue online.
Advantage of staring own website as are as follows

 If he exercise this option he will have full freedom and control over his business. There is
no subscription cost that he has to pay.
 No completion to be faced with seller on the same website.
 No issue for selling price fixation company by itself can fix the price of the product.
 Return policy and other issues that seller faces.
 Mr. Amana can decides on its own about the discounts and benefits.
 No distribution of profits.
 Maintenance of secrecy.
 Easy engaging customer as people prefer buying things online nowadays Guaranteed sale of 100,000 units annually (Shawver,2020).
Disadvantage of online business for Mr. Amana
 More expensive then selling on Amazon.
 Risk is of not be able to attain required sale
 Lack of experience
 Shutting down branches at prime locations which would effect the overall revenue of the
company.
 Lack of popularity about the online website of the company, lot of promotion and
communication needed.
 Company will not have a data base for customer, no scope for artificial intelligence to
process the operations.
Option 2- Selling through online platform Amazon
Amazon is world largest online retailer and a worldwide recognized reputed platform. It is an e-
commerce website involved in digital streaming, retailing, artificial intelligence.
The business alternative option of selling through direct platform Amazon would have following
conditions :
1. Amazon fulfilment fees of Euro 50000
2. Selling of 65000 units on Amazon is fixed which can increase with respect to demand.
3. Lack of control over price and return policy.
4. Highly level competition.
Benefits of selling through Amazon :

 Amazon is reputed brand among the customer, catching potential customer would be a
easy task.
 Cost incurred on selling here is quiet low as compared to own website.
 There will be no hustle of hiring and maintenance of staff and website operators. Mr.
Amana can concentrate on the sales part.
 Guaranteed sales of 65000 units, this guarantee option is not available on own website.
 Using amazon initially would gain popularity to the product
 Scope of increase in sales and profitability that make it a safer option.
 Elimination of cost incurred while operating the business offline.
 It has a excellent artificial intelligence which directs customer and helps in increasing
sales.
Disadvantages of selling through Amazon:
 No control over price and return policy of the product which is the main disadvantage.
 Strong competition with other brand competitors.
 Lack of secrecy
 Amazon works on customer centric approach which is disadvantageous for the company.
 Profit sharing and increased commission with rise in revenue.
 Discounts and offers are not in control of the company owner.
Both the options available with the company as above discussed is critically analysed. Option in
which the company have to halt its operations in branch in the cities Brighton, Birmingham city
centre and Manchester (Sixt, and Himmer, 2019). This would only increase 50% of the online
sale and decrease the offline sale. Incurring cost of 235000 is more about 185000 more as
compared to Amazon platform.
Following points can be concluded from the above discussion:
1. starting own website cost will be relatively much higher then Amazon.
2. Guaranteed sales on own website is 100000 units with setting up cost of 235000. with
additional opportunity cost of shutting down branches
3. Guaranteed sales on Amazon website is 65000 units with cost of 50000.
4. In own website there is full control over price and policy unlike Amazon.

5. Their is lot of competition that Mr. Amana have to face while selling on Amazon
platform.
As per above case study it can be said that starting business online is much needed move for Mr.
Amana business as business environment is taking online transformation. Initially with lack of
data base about customer and less cost involved Amazon is much safer option. Because handling
everything initially by own self will be difficult task. Incurring a lot of cost at once could be
riskier decision. Amazon will provide consumer database and other facilities that online selling
requires. By this Mr. Amana will get an idea and he can evaluate what actually is requirements
for selling online. Later on can start his own website earn a increased profit with gained
knowledge and experience (Yang, Dumay and Tweedie 2020).
CONCLUSION
The above prepare report concludes the reason for decline in company's revenue, gross
profit and net profit. The reason is that the organisation has spent more on its expenses and it has
less focus or control over its revenue. Due to these factors, the efficiency of company declines,
which makes it difficult to adjoin the goal and objectives of an organisation. The above
mentioned report specifically states that in year 2020, some extra factors, for instance, trackable
costs, high expenditures, and area where it occurred high expenses, would create a difficulty for
the organisation. These are hurdles that will create serious issues for the entity. And, lastly
various updates are suggested in order to make reduction in excess expenditure and sales. This
will results in making a lot of money or profits for the entity.

REFERENCES
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