Amana Limited: Budget Analysis, Performance Evaluation, and Strategies

This report presents a comprehensive analysis of Amana Limited's financial performance, focusing on its monthly control report, budget variances, and overall business strategy. The report begins with an introduction to management accounting and budgeting, followed by the preparation of a detailed monthly control report for Amana Limited, comparing its original budget, flexible budget, and actual performance. An in-depth evaluation of the company's performance for the year 2019-20 is provided, highlighting key variances in revenue, cost of goods sold, and expenses. The analysis includes suggestions for the CEO to improve business operations and achieve profit maximization. Furthermore, the report assesses the decision of Mr. Amana regarding online sales, comparing the costs and benefits of selling through a company-owned website versus Amazon. The report concludes with recommendations for improving Amana Limited's financial outcomes and strategic direction.

MANAGEMENT
ACCOUNTING

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1.Prepare the monthly control report of Amana Limited displaying the flexible budget, original
budget and budget variances........................................................................................................3
......................................................................................................................................................5
2. Evaluate the performance and activity of Amana Limited for the year 2019-20 using the
control report prepared above......................................................................................................6
3. Propose suggestions for the CEO of Amana Limited to accelerate the business towards
better path.....................................................................................................................................7
PART B............................................................................................................................................9
1. Assess and evaluate the decision of Mr. Amana of bringing in company's online websites
and measure the two decisions of either selling on company owned online website or trade
with Amazon in consideration of the total costs involved...........................................................9
CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Management accounting involves a method of accounting which is responsible for
creating reports, statements and documents that assists the management to take better decisions
relating to the performance of the business. A budget is an approximation of the revenues as well
as the costs of the business prepared in advance which will occur in the future and is checked
upon frequently when executed (Căpușneanu and et.al., 2020). In the report below, a case study
of Amana Limited is presented below where a brief explanation of budgets and different type
budgets is mentioned. the preparation of a control report for the organisation is also given based
on which an analysis of the financial situation of Amana Limited is given. Along with this
recommendations are provided to the organisation of Amana Limited for improving their results
and business operations by focussing upon the variations which occurred in their budgets and
achieve the objective of profot maximisation along with customer satisfaction.
MAIN BODY
1.Prepare the monthly control report of Amana Limited displaying the flexible budget, original
budget and budget variances. Control report: The control reports are prepared for the purpose of establishing
management control. These reports are supposed to figure out the deviations and
variances which have taken place when compared to the budgeted performance of the
organisation. This is done so that the corrective actions can be brought into effect as and
when needed and on an immediate basis to avoid any losses. The control reports are used
The control report has two dimensions: the first dimension deals with to evaluate and
determine the individual particular performances of the employees and departments as
per the standard performances set by the business to measure the variations. The second
dimension of control report is concerned with measuring the business performances in
economic terms and assess the deviations that may come about (G'iyosov, 2019). Original budget: An original budget is the detailed form of budget with an onward
looking outlook as it is the most initial form of budget which is authorized for the budget
period. This budget displays the most initial form of budget including all the estimation
of revenues and expenses that have been decided by the business as standards. It also
includes the written premises involved in the budget and for its preparation. By using the

original budget, it acts as an assistance to analyse, evaluate and determine the business
performances and asses profits for future. It even regards with the deviations that occur
between static budget and the actual potential of business with regards to business
expenses and revenue generation. Flexible budget: A flexible budget is a type of budget which can adjust according to the
changes that take place in the business on actual revenue levels (Golyagina and Valuckas,
2020). The actual revenues and numbers are used and the flexible budget then provides
generation of budget which is specific to the level of input which has occurred actually.
The flexible budget is not rigid in nature like a fixed budget and hence can be adjusted
according to the changes in the level of input in the organisation. The flexible budget
mainly includes various variable costs that are flexible in nature and changes according to
output levels also as and when the output changes, the flexible budget assist to provide
for all the deviation that occurred as per the actual budget previously formulated.
 Budget variance: The budget variances refers to the situations in which the actual
budgeted units and the standard budgeted units vary in numbers. It may occur that the
standards decided by the business either are lower than or higher than the actual output
realised by the business organisation. The deviations in the numbers are evaluated
effectively to measure these variations accordingly and the reasons due to which this
happened may occur to be internal or external to the business. A negative variation
displays that the business has incurred higher expenses s compared to the expenditure
previously decided by business as standards. A positive budget variance displays that the
revenue generated by the business in actual are higher than the standard revenues or costs
incurred are lower than the expected costs and hence is profitable for the business
(Hiromoto, 2019).

The monthly budget control report of Amana Ltd. is provided below:
AMANA LTD
Monthly Control Report
Particulars
Original
budget (£)
Actual (£)
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%

2. Evaluate the performance and activity of Amana Limited for the year 2019-20 using the
control report prepared above.
Analysis for Amana Ltd.'s budget report:
 The flexible budget showcases decrease in the business operations when compared with
the actual budgets prepared by the company (Ismail, Isa and Mia, 2018). This shows that
the company should focus on selling more units of the products of the organisation as
well as increase the prices of the products so that higher profit margin could be achieved
for each unit of good sold. This should be done ensuring that the high per unit prices do
not result in reduction in revenues generated. This would assist Amana Limited with the
objective of profit maximisation in upcoming years.
 The selling price of the products of Amana Limited is £25 and standard units assumed to
be sold in the marketplace is 100000 units whereas in actual scenario the cost of selling
per article is £20 and the actual number of units retailed in the market is 80000 units as
per the actual numbers. This shows that the revenue generated by Amana Limited
therefore is lower than the standards that the company had set. Hence there is a negative
deviation when the actual results are compared with standards set an a high variance in
costs.
 The gross profit realised by Amana Limited is lower than the standard gross profit
decided by the company. There is a negative deviation of £940000 from the standards
decided which is primarily due to the reason that the revenue earned by the company is
also very low as compared to standard revenue (Horton and de Araujo Wanderley,
2018).
 The per unit costs of Amana Limited could be reduced significantly if the company aims
at economies of scale which is producing higher units of products so that the costs could
be distributed over a higher production units and hence could be reduced significantly.

3. Propose suggestions for the CEO of Amana Limited to accelerate the business towards better
path.
The suggestions for the CEO of Amana Limited for the purpose f accelerating the business and
grow it towards a better path are given below. The organisation can utilise some of these
suggestions to improve the effeciency in operations and achieve better profits for Amana
Limited.
 Management of effective execution of objectives with utilization of Continuous
Performance Management.
The CEO of Amana Limited is advised to start with continuous performance evaluation of
employees as well as the company departments so that the performances can be evaluated
effectively and corrective actions could be taken when needed in a fast manner ensuring least
problems in company operations (Kapiyangoda and Gooneratne, 2021).
 Establish alignment of objectives effectively overall in the company.
The CEO of Amana Limited is advised to work on an effective alignment of company objectives
and its standard goals which it intents to achieve in future. Aligning the departmental goals along
with company's bigger goals is also advised so that there is harmony in the results achieved
along with effective appointment of business strategies (Bedford and Speklé, 2018).
 Ensuring weekly 1-on-1 meetings of managers and departmental heads with team
members appointed as individuals.
This process will assist the company to be informed about the individual employee performances
relating to the business operations as this weekly meetings will make the employees cognizant of
their performances and will enable the managers to know and assist employees with areas that
are either lacking or which need special attention from the management. Adhering to this process
will help business to evaluate and asses the performances easily and take necessary actions
suitable for the business.
 Following proper risk management planning.
The CEO and the management at Amana limited is advised to implement effective risk
management policies so that the future financial loss or issues could be solved effectively
(Mariina and Tjahjadi, 2020). This could be done by making the management aware for such

issues prior to them actually occurring with the help of effective management. This will help the
organisation to avoid many such situations which could prove to be of loss for Amana Limited.

PART B
1. Assess and evaluate the decision of Mr. Amana of bringing in company's online websites and
measure the two decisions of either selling on company owned online website or trade with
Amazon in consideration of the total costs involved.
The analysis and assessment of the two alternatives available to the CEO of Amana limited are
assessed below along with their respective benefits and drawbacks:
Option 1- If Mr. Amana commences selling on the company’s own website, following cost
would be suffered.
 Website maintenance cost: £50000
 Salary of full time IT employer: £35000
 setting up delivery network: £150000
 Total cost: (50000+35000+150000) = £235000
 Assured sales of 100000 units. Shutdown of physical outlets will affect 50% revenues online (Amoako and et.al., 2021).
Benefits of commencing personal website:
 The control and freedom of maintaining the website according top the organisation needs
and market demand for the particular product is in the hands of company owner and the
management.
 There is no such competition involved on the sales that occur on company's own website
and hence no such effects on business revenues of Amana Limited. Mr. Amana can choose among the various factors whether to provide the discounts,
website sale or other featured and in what capacity (Nielsen, 2018).
Disadvantages of commencing personal website:
 Comparatively expensive with the alternative of selling on Amazon.
 No presence of any prior customer data and hence there can be delay in bringing business
revenues. High risk with failure to achieve desired revenues units and sale figures.
Option 2- Selling over online platform Amazon, cost incurred would be following.
 Amazon fulfilment fees: £50000
 Total cost= £50000

 Assured sales of 65000 units.
 Lack of control on prices and return policy. High level of competition.
Benefits of selling through Amazon:
 Guarantee of enough revenues due to the goodwill and renowned image of Amazon as an
online selling platform.
 Cost effective when compared to the cost involved in setting up company's own website
due to which it is more preferable for the business of Amana Limited (Pelz, 2019). Huge customer data available which assist in generating faster and higher revenues and
better profitability for the business.
Disadvantages of selling through Amazon:
 Absence of any control on the return and exchange policies of the platform which makes
it less effective for Amana Limited for stimulating its revenues.
 No confidentiality related to company's secretive policies and plans for future which may
lead to leakage of some essential business plans and operations that Amana Limited is
planning for in future. Amazon has a customer driven approach which may not prove to be profitable for Amana
Limited as an organisation and may fail to achieve its moto of profit maximisation.
Overall Analysis:
The two options available with Amana limited have been effectively analysed and
measured above in the report. The first option of building the company's own website will cost
Amana limited with £235000 and the second option of Amazon will involve £50000 investment.
The conclusions which can be made from these factors are that although starting Amana Limited
own website has a high involvement of cost setup but the after results will be beneficial when
compared to selling on Amazon (Saeidi and et.al., 2018). As there is an initial guarantee of
100000 unit of sales, the company can take this as the profitable point and should initiate with
building the company owned website for future operations. This will also help the company to
reach a global market and higher customer base which will make the organisation to be known in
other countries and city areas too. Also company owned website will surely save Amana Limited
from high competition other wise present on Amazon as a word renowned website for selling
products (Vakhrushina and et.al., 2018).

CONCLUSION
From the above report it can be concluded that formulation of budgets is an essential part
of a business organisation and its operations. As it helps the organisation of Amana Limited to
ensure an efficient and effective flow of business operations and accurate analysis of the
standards and actual results of the business. The next part of the report helps to conclude upon
the financial position of Amana Limited through its control report and the analysis of that which
showed that the organisation as been incurring high costs but the revenues are not enough and
hence there is absence in profit generation for the business. The section 2 of the report helped to
conclude that Amana Limited should initiate building company's own website so that it can
accelerate its revenues and make higher profits for the business as compared to selling on
Amazon.

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