To: From: Date: Subject:

Sheila Turner Peter Smith 4 June 2021

Performance Report

Dear Sheila,

The company has decided to adopt a system of responsibility accounting, so we will be sending you one of these reports quarterly. We have also decided to link your performance against the budget to our appraisal system.

Responsibility accounting means that you are responsible for ensuring that the expenses of your department are kept in line with the budget and the actual expenses will be compared with it.

Any differences will be highlighted, so that you can identify important variations from the budget and take any necessary corrective action. .Any variation in excess of the budget must be investigated and an explanatory email sent back to me, giving reasons and any proposed corrective action.

Performance Report for the Quarter to 31 May 2021

Number of courses run

Expenditure

Speakers fees

Hire of premises Depreciation of equipment Stationery

Catering

Insurance

Administration

Actual 12

3,520 5,350 1,250 965 2,050 490 2,600 16,225

Budget 10

Variance % Variance

3,000 4,500 1,250

800 1,850 450 2,520 14,370

-520 -17 -850 -19 0 0 -165 -21 -200 -11

-40 -9

-80 -3 -1,855 -13

Comment: We need to have a discussion about the over expenditure on the Flower arranging programme.

Other information

1. Depreciation of equipment is a fixed cost. 2. Administration is a fixed cost.

3. The budget figures for catering costs and insurance costs include a fixed element as follows:

Catering 500

Insurance 250

The remaining elements of those two costs are variable.

4. All other costs are variable.

You have recently been appointed as the Management Accountant for Return Ltd, which is a new role within the company and it has become clear to you in the last few weeks that the morale of the Heads of the training course programmes, Sheila in particular, is not high.

Required:

a) Discuss the possible effects of the Performance Report and the way the budget was prepared on Sheilas behaviour. (20 marks)

b) Use the information above to produce a budgetary control statement for the 3 months to May 2021 which will give Return Ltd more meaningful information. (15 marks)

c) Explain the differences between participation and nonparticipation as styles of budgeting and discuss the advantages of each. (15 marks)

Total: 50 marks