6.3 A nursing home, which is linked to a large hospital, has been examining its budgetary control procedures, with particular reference to overhead costs.

The level of activity in the facility is measured by the number of patients treated in the budget period. For the current year, the budget stands at 6,000 patients and this is expected to be met.

For months 1 to 6 of this year (assume 12 months of equal length), 2,700 patients were treated. The actual variable overhead costs incurred during this six-month period are as follows:

Expense £

Staffing 59,400 Power 27,000 Supplies 54,000 Other 8,100 Total 148,500 The hospital accountant believes that the variable overhead costs will be incurred at the same rate during months 7 to 12 of the year.

Fixed overheads are budgeted for the whole year as follows:

Expense £

Supervision 120,000 Depreciation/financing 187,200 Other 64,800 Total 372,000 Required:

(a) Present an overheads budget for the six-month period ending the year (one budget).

You should show each expense. What is the total overhead cost for each patient that would be incorporated into any statistics?

(b) The nursing home actually treated 3,800 patients during months 7 to 12, the actual variable overheads were £203,300 and the actual fixed overheads were £190,000. In summary form, examine how well the home exercised control over its overheads.

(c) Interpret your analysis and point out any limitations or assumptions.

2 Receipts from sales . Payments from credit customers are expected to be 70 per cent during the month of sale, and 28 per cent during the following month. The remaining trade receivables are expected to go bad (that is, to be uncollectable).
Credit customers who pay in the month of sale are entitled to deduct a 2 per cent discount from the invoice price.
3 Finished goods inventories . These are expected to be 40,000 units at 1 July. The business’s policy is that, in future, the inventories at the end of each month should equal 20 per cent of the following month’s planned sales requirements.
4 Raw materials inventories . These are expected to be 40,000 kg on 1 July. The business’s policy is that, in future, the inventories at the end of each month should equal 50 per cent of the following month’s planned production requirements. Each Zenith requires 0.5 kg of the raw material, which costs £1.50/kg. Raw materials purchases are paid in the month after purchase.
5 Labour and overheads . The direct labour cost of each Zenith is £0.50. The variable overhead element of each Zenith is £0.30. Fixed overheads, including depreciation of £25,000, total £47,000 a month. All labour and overheads are paid during the month in which they arise.
6 Cash in hand . At 1 August the business plans to have a bank balance (in funds) of £20,000.
Required:
Prepare the following budgets:

(a) Finished inventories budget (expressed in units of Zenith) for each of the three months July, August and September.

(b) Raw materials inventories budget (expressed in kilograms of the raw material) for the two months July and August.

(c) Cash budget for August and September.