A Public Sector Organisation is extending its budgetary control and responsibility accounting system to all departments. One sueh department coneemed with public health and welfare is called

‘Homecare’. The department consists ofstaff who visit elderly ‘clients’ in their homes to support them with their basic medical and welfare needs.

A monthly cost control report is to be sent to the department manager, a copy of which is also passed to a Direetor who eontrols a number of departments. In the system, which is still being refined, the budget was set by the Director and the manager had not been consulted over the budget or the use of the monthly control report.

Shown below is the first month’s cost control report for the Homecare department.

In addition to the manager and permanent members of staff, appropriately qualified casual staff are appointed on a week-to-week basis to cope with fluctuations in demand. Staff use their own transport and travel expenses are reimbursed. There is a central administration overhead charge over all departments. Consumables consist of materials which are used by staff of care for clients.
Administration and telephone are costs of keeping in touch with the staff who often operate from their own homes.
As a result of the report, the Director sent a memo to the manager of the Homecare department pointing out that the department must spend within its funding allocation and that any spending more

Required:

(a) Develop and explain the issues concerning the budgetary control and responsibility accounting system which are likely to be raised by the management accountant. You should refer to the way the budget was prepared, the implications of a 20% increase in the number of visits, the extent of controllability of costs, the implications ofthe funding allocation, social aspects and any other points you think appropriate. You may include numerical illustrations and comment on specific costs, but you are not required to reproduce the cost control report. (14 marks)

(b) Briefly explain Zero-Based Budgeting (ZBB), describe how (in a situation such as that above)
it might be implemented, and how as a result it could improve the budget setting procedure.

Transcribed Image Text:

Visits Cost Control Report - Homecare Department Month ending May 2000 Budget 10,000 Actual (Overspend)! Underspend 12,000 (2,000) Department expenses: Supervisory salary 2,000 2,125 (125) Wages (Permanent staff) 2,700 2,400 Wages (Casual staff) 1,500 2,500 300 (1.000) Office equipment depreciation 500 750 (250) Repairs to equipment 200 20 180 Travel expenses 1,500 1.800 (300) Consumables 4,000 6,000 (2.000) Administration and telephone 1,000 1,200 (200) Allocated administrative costs 2,000 3,000 (1000) 15,400 19,795 (4.395)