Management Accounting Report: Performance Analysis of Amana Ltd, 2020

This management accounting report provides a comprehensive analysis of Amana Ltd's performance, focusing on budget control, variance analysis, and strategic recommendations. The report includes a monthly control report with flexed budget, original budget, and variances, followed by an analysis of Amana Ltd's performance for the year 2020, highlighting areas of concern such as revenue shortfalls and cost overruns. Recommendations are made to the CEO to improve financial performance. Additionally, the report analyzes Mr. Amana's decision to go online, comparing the costs and benefits of setting up a personal online shop versus selling on Amazon, ultimately advising Amana Ltd to establish its own website to maintain control and brand identity while leveraging existing customer relationships. Desklib offers a wide range of similar reports and study resources for students.

Management
Accounting 2 Report

Contents
INTRODUCTION...........................................................................................................................3
PART A...........................................................................................................................................3
A) Prepare a monthly control report with flexed budget, original budget and variances for
Amana Ltd...................................................................................................................................3
B) Using the above prepared control report, analyse the performance of Amana Ltd. for the
year 2020.....................................................................................................................................5
C) Recommend the CEO of Amana with the ways they can improve........................................6
PART B...........................................................................................................................................6
Give and analysis Mr. Amana's decision to go online and advise whether he should set up his
own online shop or sell on Amazon by considering all the important costs...............................6
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
Management accounting refers to a type of accounting which focuses on creation of goals by
strategic identification, measurement, analysis and communication of important information to
the strategic managers of the business. This kind of accounting focuses on informing the
management about the operations of the business and how much the actual output deviating from
the projected ones (Cooper, and Slagmulder, 2017). Management accounting is different from
financial accounting as this kind of accounting does not focus on creation of financial financial
statements to be further used by external users of accounting information. The management
accounting is used by the internal management of the business. This report highlights the main
aspect of management accounting which is Budgets. A case study budget is prepared in this
report of Amana Ltd. following a detailed analysis and recommendations. It also compares a
personal online shop for the company with Amazon.
PART A
A) Prepare a monthly control report with flexed budget, original budget and variances for Amana
Ltd.
Monthly Control Report refers to a report which is prepared on a monthly basis. These reports
reviews mainly the operational performance of the business in view to the predetermined goals.
It determines if the business is working in accordance to the goals which are set up by the
management. These reports also checks the spending of the business and what are the trends in
the same. With the help of this report the future spending can be predicted and the business can
allocate the funds with more ease. And with the help of these reports the business can find ways
to reduce the expenses from time to time (Bedford, 2020).
Flexed Budget refers to that which consists of changes that have been occurred in the projected
budget to actual elements. This budget is flexible as it can change according to the actual figures
that have occurred in the period. This type of budget uses the percentages of the revenue to
project the different expenses that occur.
Original Budget consists of those figures which have been occurred actually in the period of
business. It consists of actual info about the revenues and expenditures that have earned and
incurred by the business exclusive of the projected ones. By these actual figures the business
calculates its profit for the period.

Budget Variance refers to that part of management accounting which is the amount of
difference between the figures that have been projected and the actual figures which the business
have dealt with. In simple terms it is the difference between the budgeted and actual amount.
These budget variance can be favourable and unfavourable as well (Hogle, 2019). If the amount
is positive it is considered as a favourable as it means the enterprise earned more than what they
planned for. If the figure is negative it is considered as unfavourable.
The monthly control report of Amana Ltd. has been prepared below:
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 %
Full - time Warehouse
Supervisor salary
50000 35000 - 15000 - 30.00 %
Net Profit 1350000 455000 - 895000 - 66.30 %

B) Using the above prepared control report, analyse the performance of Amana Ltd. for the year
2020.
Following steps can be followed by the management at Amana Ltd. To analyse the above
report:
1. Track the Expenses: The budgets are formed to keep a check on the expenses that are
being incurred by the organisation for the management of operations at work. These
expenses are checked monthly via the control report prepared by the business (da Silva,
and et.al., 2017). The management keeps a track of all the money which is being spent in
the business and what are the reasons for that spending. The analysis of these spending
calculates the spending variances which individually finds out where the money has gone
and how much more requirement is there for the monetary funds.
2. Identification of area with over-expenses: At this stage the business identifies, using the
control report, the areas of spending which have increasing amount of spending.
3. Areas where extra money has been spent: Measure the domain were compared to the plan
fewer quantity is exhausted and can covert the surplus wealth spent in that class.
Analysis of performance of Amana Ltd.:
Amana ltd. Is not really doing well according to the above control report. While looking at the
individual values the revenue of the firm the revenue earned and that projected has a lot of
difference. The variance between is the two figures of revenue is 36% that too unfavourable.
This shows that the firm has not yet decided how the unused revenue will be used (Huert., PetrS.,
2019). The cost of goods sold have seen a slight favourable change which is good that the firm
have already projected enough. Raw materials, and direct labour can be seen showing favourable
change which is good for the company as they were already aware about the cost they might deal
with in the given month and they have made arrangements for the same. The projected gross
profit was way too low than the actual profit this creates a really hard burden on the business as
they are not meeting the projected profits and they will have to issue further funds that might
have been kept for growth prospects in meeting the costs. The different costs of the business can
also be seen with negative values that means they also show unfavourable position for the
business (Mou, Atkinson, and Marshall, 2019). This means the value of them projected have
been exceeded by the actual budget. This pose a greater threat for the liquidity of the business as
they now have to deal with these increased costs with a really low gross profit. Similarly, the net

effect can be seen in the net profit of the business. This is really dangerous for the business as the
projections of the business have gone wrong and the other prospects that the business might be
having will not be met due to these variances between the actual and projected values (Zawawi,
and Hoque, 2018).
C) Recommend the CEO of Amana with the ways they can improve.
In this section of the report, some recommendations have been made to the management of
Amana ltd while focusing on the above analysis.
Amana ltd is hugely showing
PART B
Give and analysis Mr. Amana's decision to go online and advise whether he should set up his
own online shop or sell on Amazon by considering all the important costs.
For recommendation, the report will first calculate the different costs associated with the
business indulging in online shopping.
Cost of setting up delivery network = £150,00
Cost of upgrading current website to handle large volume of sales = £50,000
Salary of a full-time IT programmer = £35,000 per annum
Total Cost = 150000 + 50000 + 35000 = £ 235,000
Amazon fulfilment fees = £ 50,000
Thus, in setting up the own online platform it will incur more cost, which is a huge
difference of £ 185,000.
Following is a detailed critical analysis of the advantages and disadvantages for Amana ltd to
either go for amazon or open their own business site.
Amazon is one of the most renowned international brand for online shopping. It is used by
thousands of consumers every day.
Advantages of using Amazon’s platform
 The main advantage of using amazon as a platform for sales is that the sales of the
business is meant to increase. The site is used by millions of users and many consumers
will engage in the products of the business and this will create a huge impact on the
business’s revenue.

 Amazon is that platform which is working all around the world. It has a global reach and
the band is trusted by almost all the people around the world. This gives small- and large-
scale business a greater chance to showcase their own diversified products to the world.
 The main importance of amazon is that the customers don’t look up for a particular brand
but they are looking for a specific product. This gives business yet another chance to get
in the eyes of the customers by providing their products.
Disadvantages of using Amazon
 The main disadvantage for a business is that the competition on such a site is high
rocketed. The main big players in the market can acquire the limited consumer base on
the site and as it also asks the consumers to provide feedback, it can yet another back lag
for new businesses who are learning the working of the businesses.
 The businesses dealing in the products on amazon have a less or 0 control over the price
and products they are dealing in, they have to follow the instructions of the Amazon.
 The fees required by amazon is kind of huge for new and small scale businesses,
Own Business site
It refers to a web page created exclusively for the business which has all the information related
to the products and services offered by this business.
Advantages of opening own business site
 The main advantage of selling on your own business site is that the business gets all the
control about what the business wants to design, sell, information to reveal and other
things of that sort.
 Unlike Amazon, this website is all about the business and there is no information about
any competitors or other services which are not related to the business. It helps in
containing the consumers to one’s site.
 Just as business gets its own website, the consumers can just name the particular brand of
the business and the website will show up the business site. The presence of the business
get higher when have their own website.
Disadvantage of opening own business site

 The main cons of the business website is that the business website gets less reach if the
business is new in the market and due to this the product gets less visibility which lessens
the profitability of the business.
 The consumers try to doubt the credibility of the website as in comparison the amazon
has a greater reputation. Customers may distrust trustworthiness and shop somewhere
else, from places they recognise and have confidence in. Markets are a countless method
to counter this subject, as they previously have righthand dealings with world-wide
viewers (Ostaev, Gand et.al., 2019).
 The own websites may not get the desired support from the different sources.
Final thought
Amana ltd should go for creating their own website as the business is already set up in the
real world. The business has many consumers and they can motivate the existing customers
by providing them incentives to engage with their site and promote in their circle. The cost
might be huge for the business but the control is in the hands of the business and this is what
matters for a business who has high reach in the real marketplace.
CONCLUSION
The above-mentioned report can be concluded by saying that management accounting is an
important tool for the business. Due to management accounting the business can get the insights
as to how the business is performing in a short term and if it is not up to the mark the business
can take corrective decisions which would help the business in long run. Management
accounting helped Amana Ltd. in analysing where the business is lacking and the report has
recommended the different ways that they can opt to enhance the working of the business. This
is done by analysing the difference variances that have been calculated in the report. The
recommendation is given that the net profits are a crucial part of management. In the last section
of the report a detailed comparison is done if the business should sell its products on amazon or
if they should create their own website to sell their products.

REFERENCES
Books and Journals
Cooper, R. and Slagmulder, R., 2017. Target costing and value engineering. Routledge.
Bedford, D.S., 2020. Conceptual and empirical issues in understanding management control
combinations. Accounting, Organizations and Society. 86. p.101187.
Hogle, L.F., 2019. Accounting for accountable care: Value-based population health
management. Social Studies of Science. 49(4). pp.556-582.
da Silva, and et.al., 2017. Oral-aural accounting and the management of the Jesuit
corpus. Accounting, Organizations and Society. 59. pp.44-57.
Huerta, E., Petrides, Y. and O’Shaughnessy, D., 2017. Introduction of accounting practices in
small family businesses. Qualitative Research in Accounting & Management.
Kaplan, R.S., 2019. The role for empirical research in management accounting. Accounting,
organizations and society. 11(4-5). pp.429-452.
Zawawi, N.H.M. and Hoque, Z., 2018. Research in management accounting innovations: An
overview of its recent development. Qualitative Research in Accounting &
Management.
Ostaev, G.Y., and et.al., 2019. Strategic budgeting in the accounting and management system of
agricultural enterprises. Indo American Journal of Pharmaceutical Sciences. 6(4).
pp.8180-8186.
Mou, H., Atkinson, M.M. and Marshall, J., 2019. Budgeting for efficiency? A case study of the
public K-12 education systems of Canada. Applied economics. 51(34). pp.3740-3757.