A new private hospital of 100 beds was opened to receive patients on 2 January though many senior staff members including the supervisor of the laundry department had been in situ for some time previously. The first months were expected to be a settling-in period; the hospital facilities being used to full capacity only in the second and subsequent months.
In May the supervisor of the laundry department received her first monthly performance report from the hospital administrator, together with an explanatory memorandum. Copies of both documents are set out below.
The supervisor had never seen the original budget, nor had she been informed that there would be a monthly performance report. She knew she was responsible for her department and had made every endeavor to run it as efficiently as possible. It had been made clear to her that there would be a slow build up in the number of patients accepted by the hospital and so she would need only three members of staff, but she had had to take on a fourth during the month due to the extra work. This extra hiring had been anticipated for May, not late February.
Rockingham Private Patients Hospital Ltd
MEMORANDUM 30 April
To: All Department Heads/Supervisors
From: Hospital Administrator
Attached is the Monthly Performance Report for your department. The hospital has adopted a responsibility accounting system so you will be receiving one of these reports monthly. Responsibility accounting means that you are accountable for ensuring that the expenses of running your department are kept in line with the budget. Each report compares the actual expenses of running your department for the month with our budget for the same period. The difference between the actual and forecast will be highlighted so that you can identify the important variations from budget and take corrective action to get back on budget. Any variation in excess of 5 per cent from budget should be investigated and an explanatory memo sent to me giving reasons for the variations and the proposed corrective actions.

Comment: We need to have a discussion about the over expenditure of the department.
(a) Discuss in detail the various possible effects on the behavior of the laundry supervisor of the way that her budget was prepared and the form and content of the performance report, having in mind the published research findings in this area,
(b) Re-draft, giving explanations, the performance report and supporting memorandum in a way which, in your opinion, would make them more effective management tools.

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Performance report laundry department month ending to 31 March Variation (Over) Actual Budget Under Variation Patient days Weight of laundry 8000 6500 (1500) (23) processed (kg 101170 81250 19920(24.5) Department expenses Wages Supervisor salary 4125 3450 (675) (19.5) 1490 1495 770 510 5 Washing materials Heating and power Equipment 920 560 (150) (19.5) (10) (50) depreciation 250 250 Allocated administration costs 2460 2000 (460) (23) Equipment maintenance 10 45 35 78 1295 15