To: Sheila Turner From: Peter Smith Date: 4 June 2021 Subject: 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 Actual Budget Variance % Variance Number of courses run 12 10 Expenditure Speakers fees 3,520 3,000 -520 -17 Hire of premises 5,350 4,500 -850 -19 Depreciation of equipment 1,250 1,250 Stationery 965 800 -165 -21 Catering 2,050 1,850 -200 -11 Insurance 490 450 -40 - 9 Administration 2.600 2.520 -80 -3 16.225 14.370 -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 Sheila's 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