Advanced: Budget use and performance reporting 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 three months were expected to be a settling-in period; the hospital facilities being used to full capacity only in the second and subsequent quarters.

In May the supervisor of the laundry department received her first quarterly performance report from the hospital administrator, together with an expla¬ natory 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 quarterly performance report. She knew she was responsible for her department and had made every endeavour 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 3 members of staff, but she had had to take on a fourth during the quarter 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 Quarterly Performance Report for your department. The hospital has adopted a responsibility accounting system so you will be receiving one of these reports quarterly. Responsi¬ bility 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 quarter 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% 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 overexpenditure of the department.
You are required to:

(a) discuss in detail the various possible effects on the behaviour 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 find¬ ings in this area, (15 marks)

(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 3 Months to 31 March Variation (Over)/ % Actual Budget Under Variation 8000 6500 (1500) (23) Patient days Weight of laundry processed (kg) 101 170 81 250 (19920) (24.5) Department expenses () () () Wages 4 125 3450 (675) (19.5) Supervisor 1490 1495 5 salary Washing materials 920 770 (150) (19.5) Heating and power 560 510 (50) (10) Equipment 250 250 - depreciation Allocated 2460 2000 (460) (23) administration costs Equipment maintenance 10 45 35 78 9815 8520 (1 295) (15)