LCBB5002 - Management Accounting: Amana Ltd Financial Report 2020

This report provides a comprehensive financial analysis of Amana Ltd for the year 2020. It includes a monthly control report that depicts the flexed budget, actual budget, and their variances, followed by an interpretation of Amana Ltd's financial performance based on this control report. Key areas of concern are identified, such as sales results, raw material and labor variances, and net profit margins. Recommendations for improvement are offered, focusing on cost reduction in labor and materials, as well as strategies for increasing revenue through enhanced manufacturing and targeted advertising. The report also analyzes whether Amana Ltd should establish its own online shop or sell its products on Amazon, considering the costs and benefits of each approach, ultimately suggesting that selling on Amazon is the more cost-effective option. Desklib offers a wealth of similar solved assignments and past papers for students.

Accounting

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK A...........................................................................................................................................3
1. Prepare a monthly control report depicting the Flexed budget, Actual budget and their
variances......................................................................................................................................3
2. By using the above prepared control report, interpret the financial performance of Amana
Ltd for the accounting year 2020................................................................................................4
3. Provide necessary improvements in the business area to Mr. Amana....................................6
TASK B ..........................................................................................................................................6
Analyse the position of the business and provide recommendation to Mr. Amana on whether
the business should start their own online shop or consider selling on Amazon........................6
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
A budget refers to an estimate which is performed for the incomes and expenses of the
business for a future period and is regulated after a regular period of times. Budgets are
formulated for the management of the business and these aid the decision making of the
business. Budgets can be used by individuals, companies, government or other organisations
who deals in spending of monetary funds for its operations (Massicotte and Henri, 2021).
Budgets are created for a future time period and the actual values that have occurred in the
business are then compared and variances are administered to take corrective measures in the
business. This report highlights how the business of Mr. Amana calculates these variances that
have occurred by comparing the actual values with the standard ones. A detailed analysis of
these variances is done in the following report following the recommendations. In the second
part of the report, a description is provided for Amana, if he should set up his own business site
or sell its products on Amazon.
TASK A
1. Prepare a monthly control report depicting the Flexed budget, Actual budget and their
variances.
Monthly Control report refers to the technique in budgeting which introduces information
which are related to the different expenses in the business and also includes the changes in
expenses that may occur. This report helps the businessperson to keep a check on its spending
pattern which can become a bug hinder for the organisation. Likewise, this report allows the
board to analyse maintenance related office expenses and also attempt in order to track down the
methods of minimizing the expenses from one month to other.
Flexed Budget differs with modification in the measuring of real financial gain remedy. In its
most unambiguous constitution, the flexion disbursement of funds idea will utilise taxation of
income for peculiar costs, rather than the regular rigid figure (Martin, 2020).
Original Budget is created by reckoning the past information, revenues and spending. On the
ground of which the plan is braced and the reimbursements are computed. It also assists in
approximation the net net income of the business
A budget deviation is a cyclic measurement utilised by system, organization, or group of person
to measure the opposition within regular and existent figures for a particular accountancy

assortment. A indulgent variance hints to affirmative changes or advantage and an adverse
deviation represent counter divergence, present misconduct or deficit. It come about in presence
of the fact that practitioners can't anticipate approaching disbursal and financial gain with
absolute accuracy.
AMANA LTD
Monthly Control Report
Particulars
Original
Budget
Flexed
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 labour 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%
Fulltime Warehouse Supervisor salary 50000 35000 -15000 -30.00%
Net Profit 1350000 455000 -895000 -66.30%
2. By using the above prepared control report, interpret the financial performance of Amana Ltd
for the accounting year 2020.
Below mentioned are the steps that may be used by the analyst for evaluating the control rteport
of Amana Ltd.
 Follow up the Expenses: The most important use of finance is to help management keep
track of the various expenses that can arise in the life of businesses. The financial
statements are prepared annually, but the production spending plan is monthly. The
budget deviation analysis helps the managers determine whether there is any potential for
savings (Herschung, F., Mahlendorf and Weber, 2018). A large company spending plan
may require integrating its spending plan with the company's financial requirements for
it.
 Recognise the section of excess-expenditure: By creating and analysing the budget
reports, the areas with high costs or additional expenses can be viewed and the necessary
decisions can be made.

 The section at which money is spent in excess: In this step, management compares
areas that are spending less money with those that are spending more. These amounts
may be taken into account when drawing up the new budget.
Below mentioned are the actual evaluation which has been done for the purpose of
budget report prepared for Amana Ltd.
 The sales result of Flexed budget is less than original one. Thus the firm is required to
advertise its quantity by increasing the sale value of the products. It will assist the
business in generating income for the business. As per the original budget, sale price is
GBP 25 and the number of units units sold are 100000. These both values are more than
the planned figures. Because of this big variation the position of the firm has badly
affected.
 The raw material and labor variance is really high. In the initial budget, the unit cost is
10% of the unit selling price. However, the real cost is £ 280,000 which is more than
10%. Therefore, the company needs to reduce raw material costs, which in turn supports
spending.
 The unit labor cost can also be reduced based on the amount of units produced in a
month. This is because the cost of direct work in the flexible budget goes down
(Flamholtz Johanson and Roslender, 2020)..
 The organization's gross profit is really less compared to the primary plan which is
55.29%. The result of the income and the operational payments are shown in the gross
income. So from the start, income and relocation costs should be properly managed.
 The rigid overhead costs take into account warehouse rent, security and the warehouse
manager's full-time remuneration. The previous all the rigid costs are little from the
primary fund when considering the existing plan.
 The net return is just under 66.30% of the primary plan. It should be taken in a righteous
thought of reducing some of the postponements and rigid issues. This is because it will
calculate the ultimate fiscal health of the organization and if the net profits are showing
losses that will affect both the operation and the growth of Amana Ltd.
3. Provide necessary improvements in the business area to Mr. Amana.
The recommendation can be given to Mr. Amana on its performance report in the following
ways:

 The labour cost of the business can be decreased by using the units produced by the
labour and by determining the work done by each worker. The business can make its per
unit cost of the labour fixed and with this the additional costs of the business will not
occur.
 The material cost which are projected in the budget are much higher that than the actual
costs which are incurred in the production. This means that the business have wasted its
financial funds into these higher material costs. The business needs to take different
actions that these wastages does not happen in the future (Chen, 2017).
 The business should mainly focus on increasing its revenue. To make this happen, the
business is required to focus on hiking its manufacturing units which will help in
increased revenue and higher profits. The business should incur costs on advertisements
which would help increased sales. The budget of the business should be carefully made
while taking into account any backlogs that may happen in the business.
TASK B
Analyse the position of the business and provide recommendation to Mr. Amana on whether the
business should start their own online shop or consider selling on Amazon.
The competitor's of the Amana's corporation is growing online in places like the UK, Europe and
the US. It has decided to transform its trading business online, and the two requirements for
switching online are:
 By closing the branch of Brighton, Birmingham and Manchester by throwing the 50% of
gross sales online (Skorev and et.al., 2020). For this purpose, certain fixed costs are
justified, such as: reimbursement of the installation of the transport network, net income
of the IT coder and value of the adaptation of the website. Besides this, it sales is 10000
units of the earning which are sold yearly. Mr. Amana has to fund a total cost of:
Setting up expenses of online transportation = £150,00
Expenditure of raising actual internet site to hold large mass of sales = £50,000
Wage of a full-time IT coder = £35,000 per annum
Total expenses = 150000 + 50000 + 35000 = £ 235,000

 It also has the option of selling his goods immediately on Amazon and only paying his
satisfaction fees. There is a sure sale of 65,000 units per year and it is accelerating the
demand for its merchandise. The entire costs are incurred us -
Amazon Fulfilment Fees = £ 50,000.
In order to set up the personal online platform, additional work has to be accepted, which
is an vast deviation of 185,000.
Amazon is a healthy and a recognized online platform. It has a large customer base. It is
much cheaper to trade on Amazon than it is to earn income on the personal website. Because
even setting up your own website is associated with enormous costs and time (Sjögren and
Fernler, 2019).
The further difference will clarify the two options in more detail.
Basis Amazon Setting up the online store
Range of the client It has a huge customer base. It
alone accounts for almost 40 %
of annual merchandising.
It will give consumers a great
amount of time if the minimum
income of the units is assured.
Management It will do the site repair and
move. The sellers insist on not
managing it, they just need to
fund the reimbursement.
It will a collaboration as a branch of
the business to help maintain the
website and to modify the goods in
good time. All the necessary
expenses in the operation fall into
the situation being collected by the
owner himself, avoiding the goods
(Nielsen and Pontoppidan, 2019).
Owned The power of disposal over the
goods and the design of the
goods is not in the interests of the
seller.
The entrepreneur has full power
over the design of the page,
communicative and avoids the
goods. It can be managed to report
its own profit.
Costs If the seller sell directly on to the
amazon site, it will cost only £
The decision of the products which
are to be sold online are on its own

50,000 and the expenses will be
analysed by the commencing
amount of the website
(Caperchione and et.al., 2019).
website will require an immense
financial investment. The
reimbursement will take up £
235,000 which is large.
Data It has more data about the
customers who purchase online.
It has to start over and gathering
data from online customers could be
challenging.
Control It has no control over the pricing
policy of the goods and the return
policies (Modell, 2020).
The top management can design the
price and return policy of the
products according to their needs
and requirements.
Protection If it choose to do so, the company
will be granted brand protection.
Customers know about it, have
brand loyalty and trust towards
consumers.
It has to build its own brand and
create a loyal customer base.
From the variances mentioned above, it can be concluded that -
 By creating your own website, more expenses are achieved than by immediate
commercialization on Amazon. So, it reported, an investment in Amazon will be healthy
for the organization in terms of spending (Miles, 2019).
 The income from the sale of the secured goods on their own Internet site is 35,000 units
much higher than on Amazon. However, this depicts that Mr. Amana's internet site is
giving out more than just receipts from Amazon.
 At Amazon, Mr Amana cannot determine the value of the goods, but it can be included
when creating its own online store.
 The interest of managing the website is borne by amazon when it has decided to sell on
amazon.
In this manner, from the previous analysis it very well may be recommended to Mr.
Amana to choose to open his own internet based shop, in light of the fact that in the end the net

gain of the association will be apparent. By making more deals through it site it can acquire net
gain.
CONCLUSION
From the above-mentioned report it can be concluded that the company discussed in the
report is highly dependent on the annual budget of the business. The budget of the business is
showing too much differences in the projected and the actual values of the business. These
differences are discussed above as the variances of the business. These variances are calculated
using the projected and the actual values. The business should focus on how the corrective
measures can be taken in the business to reduce these variances. These corrective measures
becomes the basis for the business to formulate their new budgets. The report provides
recommendation according to the performance report of the business. The recommendation
given says that the net profits of the business are necessary for the business to maintain their
financial health and business needs to focus on attaining such level of profits. The report also
explains how Mr. Amana should take his business online, whether by using amazon or selling
products using its own website. The evaluation can be seen that the business should create its
own website as these guarantee more sales and hence increased profits than selling products on
Amazon.

REFERENCES
Books and Journals
Caperchione, E. and et.al., 2019. Innovations in public sector financial and management
accounting—for better or worse?. Public Money & Management. 39(6). pp.385-388.
Chen, C.X., 2017. Management control for stimulating different types of creativity: The role of
budgets. Journal of Management Accounting Research. 29(3). pp.23-26.
Flamholtz, E.G., Johanson, U. and Roslender, R., 2020. Reflections on the progress in
accounting for people and some observations on the prospects for a more successful
future. Accounting, Auditing & Accountability Journal.
Herschung, F., Mahlendorf, M.D. and Weber, J., 2018. Mapping quantitative management
accounting research 2002–2012. Journal of Management Accounting Research. 30(1).
pp.73-141.
Martin, M.A., 2020. An evolutionary approach to management control systems research: A
prescription for future research. Accounting, Organizations and Society. 86. p.101186.
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.
Miles, S., 2019. Stakeholder theory and accounting. The Cambridge Handbook of Stakeholder
Theory, Cambridge University Press, Cambridge. pp.173-210.
Modell, S., 2020. Accounting for institutional work: a critical review. European Accounting
Review. pp.1-26.
Nielsen, S. and Pontoppidan, I.C., 2019. Exploring the inclusion of risk in management
accounting and control. Management Research Review.
Sjögren, E. and Fernler, K., 2019. Accounting and professional work in established NPM
settings. Accounting, Auditing & Accountability Journal.
Skorev, M.M. and et.al., 2020, May. The use of accounting engineering elements in strategic
accounting. In International Conference on Economics, Management and Technologies
2020 (ICEMT 2020). (pp. 381-385). Atlantis Press.