INTRODUCTION
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Monthly control report is a statement in which the calculation of profit of the business is done, not only profit, this report also contains the information about the deviations of the actual results from the results which are expected by the business at the starting of the month. The variance or the deviations are further used to provide an information about the performance of the business. If the variances are positive, it means that the deviation is favourable for the business and if it is negative, it means that the deviation is unfavourable for the business (Oncioiu, Calot? and T?nase 2021). After calculating the deviations, reasons for the variances are identified and the control procedures for the unfavourable variances are implemented in the operations of business. The monthly control report of the Amana Ltd. is given below in the table:
The variances shows that the sales unit deviation is unfavourable as the actual sales unit are lower than the budgeted sales units. And in case of material cost, the deviation is unfavourable because the amount of actual material consumed is greater than the budgeted material consumed (Magni 2019).
The performance of the Amana’s is not very good. The budgeted sales were not as expected and so the direct costs. However, the deviations of fixed costs of the company are favourable, but it is not enough to recover the amount of profit foregone due to the decreased sales and increased variable cost. The analysis of the performance of Amana’s is discussed below in detail:
Sales units are the number of units which is sold by the company during the period. More sales units mean more revenue generation, on the other hand, when the sales units go down, the revenue generation of the company becomes week. The variance in sales unit is -20000 units, it means that the variance is unfavourable. The company is not able to achieve the budgeted sales and therefore the generated revenue from the business is also low (Arhin 2018).
One reason for the decrease in sales revenue is the unit of sales, there is also another reason of the decreased sales revenue of the company which is the price at which the company sells its products. The company expected to sale one unit of product at £ 25, but the actual sales price which the company is able to get from sale of the product is only £ 20. This leads to an unfavourable deviation of £ 5 in the per unit selling price.
Revenue is the calculated as the product of sales unit and selling price which the company has achieved over the period. It is discussed in above points that the sale units and the selling price of the products are unfavourable for the business as the result, the generated revenue is also lower. Despite the lower selling price, the company is not able to sale the required number of product units and therefore, the revenue is also unfavourable for the company (Robinson 2020).
The cost of material which incurred actually is also unfavourable for the company as the expected material cost for per unit of finished goods was £ 2.5 but the actual cost for the material incurred is £280000 in total and £3.5 per unit. there is a deviation of £ 1 which is unfavourable in nature. the reduction in the value of selling price and increment in the value of material cost both things are unfavourable for the company as a result of this the profit of the company will definitely become lower. This shows that the performance of the company regarding managing the cost of material is not up to the mark.
Similarly, to the material cost the cost of labour has also been increased that total labour cost which was expected by the management is £ 400000 but in actual the cost of £440000 is incurred as the labour charges this gives the variance of £ 40000 unfavourable in totality. If we talk about per unit budgeted labour cost per unit was 4 and the actual budgeted cost per unit is £ 5.5 this gives the variance of £ 1.5 of unfavourable nature.
When the actual cost incurred is lower than the cost which is budgeted then in this case the deviation of the actual from the budgeted is favourable for the business. in case of warehouse rentals, the expected cost was £ 200000 but in actual the cost incurred is £ 170000 which gives us a favourable variance of £ 30000.
The cost of insurance shows no change in terms of standard and actual. the cost is same for both and therefore there is no deviation this is a situation which is not favourable and also not unfavourable for the company this situation can also be called as break-even situation. The cost is £ 100000 for standards as well as for actual.
Similar to the rent of warehouse the salary of supervisor also shows a favourable change for the company. The budgeted cost for the warehouse was £ 50000 but the actual cost which is incurred is lower than the budgeted which is £ 35000, therefore, it is said to be favourable for the company.
Profit is the excess of sales revenue over the direct and indirect costs incurred in order to earn the amount of profit. The amount of profit of the company will be higher if the sales revenue increases or the expenses decreases and vice-versa. The amount of profit earned by the company for the period is £ 45500 but the profit which is budgeted by the business was £ 1350000, this gives an unfavourable variance of 895000. As the profit deviation of the company is unfavourable the overall performance of the business shall also be considered as unfavourable (Botha 2018).
Final result of the analysis – The performance of the company is good, as the company is able to earn the profits for the period. But on comparing the actual results with the budgeted estimates of the company, it is very evident that the company is performing very much poor and the following recommendation must be considered by Amana Ltd.
The management of the company shall focus on increasing the number of units sold, it will directly affect the amount of revenue generated from the business activities. The business activities must be performed in a manner so that the sales of company increase, the company shall follow more aggressive marketing policy to increase the number of sales.
Another method through which the company can increase the revenue generation is by increasing the sales price. The company shall review the pricing strategy of the product and a better price for sale shall be selected. The price of the company is lower than the expected price and still the company cannot achieve budgeted sales. The process shall be analysed and the price shall be assessed once again.
The management accounting technique of product benchmarking can be used by the company. This technique is also known as reverse engineering because in this the product of the competitor is purchased by the company and such product it is tear apart by the company to check the quality e of the product. this enables the company to compare the product of the competitor for with the product of the company itself. through this the company can make amendments in its product to meet the requirements of the customers. as the sales of the company is decreasing the reason behind that might also be better products offered by the competitive forms of the company therefore by following this technique the company can make a better-quality product which is desired by most customers (Indriastuti, Nugroho and Aryanto 2017).
The cost of material and the cost of labour of the product manufactured by the company is very higher than the expected cost of material and labour. Due to this the contribution margin of the product becomes lower which results in lower contribution and then lower profit. company shall use cost control techniques of Management Accounting so that the direct cost or the variable cost of the product can be controlled easily. The inventory management system which is a very useful tool of Management Accounting can be used to determine the quantity of material required at all the times which will ultimately lead to lower handling and ordering cost of the material (KUMAR 2021).
For making the calculations, the information regarding the sales price and variable cost is required. But the details of selling price and variable cost is not provided in the question therefore, the information provided in the task a of this assignment for the budgeted sales price budgeted sales unit budgeted material cost budgeted labour cost and budgeted overhead cost has been used. The calculations are done according to these figures and the results is shown in that form of table given below:
The relevant costs of the alternatives are used for making the profit of the calculation, as per the calculations performed, the profit which will earned by adopting this alternative will be £ 146500. The cost of setting up of network can also be considered as a capital expenditure and the amortization can be charged on this, but in absence of any information about the period for which the network will be utilized or the period for which the expense shall be deferred is not provided, then in that case the cost is taken as the fixed cost of revenue nature and is charged from the profit of the period.
The profit which will be earned if the alternative of selling the product on amazon is selected, then the company will be having the profit of £ 1055000, the profit earning capacity under this alternative of the company is also good, the company is earning a good amount of profit in both the conditions.
The amount of profit earned from the both alternatives is more than the profit earned in the year as calculated in the part a of this assignment. The company is able to earn a good amount of profit in case of selling the product online and through amazon comparing to the actual profit earned by the company. The company shall select any of the two projects and shall stop selling the products in the market as the profit earned is greater in case of both the alternatives than the actual profit earned.
Both the project which includes exporting the products online or selling the products through Amazon are viable projects as a profit earned from both the projects will be more than the profit actually earned during the period as calculated in part a of this assignment. If the company accepts the alternative to export the products online in the countries of Europe USA and Canada the company will be able to earn a profit of £ 1465000 this amount it is more than the actual profit earned during the period. If the company accepts the alternative to sell the products on Amazon then the company will earn £ 1055000 profit, This amount of profit is also more than the profit earned actually e as calculated in the part A The number of sales units will be different in the two alternatives if the alternative of exporting online is selected then the company will be able to achieve a sale of 1 lakh units on the other hand in the alternative of sale on Amazon the company will be able to achieve the sales unit of 65000. The number of units sold and the revenue generated from selling the unit is Greater in case of export online. As a result of this the prophet from the alternative of exporting online is also greater than the profit by selling the products on Amazon. However, the fixed cost in curd in the alternative of exporting online is very much more than the fixed cost incurred in the alternative of selling the products on Amazon. If the products are sold by exporting them online then the amount of fixed cost will be £235000 and if the products are sold on the Amazon website, then the fixed cost only will be e £50000. This comparison shows that the fixed cost in the alternative of selling the products on Amazon is very much lower than the alternative of exporting the products online. In future the sales on Amazon will increase with the increasing demand of the product but if the products are sold online by exporting them there is no such increase in the sales of product it means the sales will be e uniform. lower fixed cost will ultimately lead to higher profits when the demand increased, in case if the products are sold on Amazon the amount of revenue will increase in future and assuming that the PV ratio will remain same the company will have more contribution and the fixed cost will also be same this will lead to higher profits for the company (Watts 2019).
For considering only the current situation of the two alternatives, it can be said that the option for exporting the product online is better as it is giving a better amount of profit, but if we see the future prospects, the amount of fixed cost is lower in case of selling the product on amazon, therefore, if the company wants to earn a good profit which will keep increasing, then it shall go with the alternative of selling the products on amazon, and if the objective of the company is to earn more profits in the short-term, then the company shall accept the alternative of exporting the products online (Zhang, Chen and Yuan 2020).
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