Reference no: EM131792211

Question 1

Hariba specialises in running courses in public speaking.

The courses are run on premises which the company rents for the purpose and are presented by freelance trainers. The courses are of a standard type and format and can therefore be treated alike for budgetary control purposes.

Hariba currently uses fixed budgets to control expenditure. The following data shows the actual costs of the company for the month of January compared with budgeted figures.

	Actual	Budget	Variance
Number of courses run	8	10	-2
	£	£	£
Expenditure
Speakers fees	2,720	3,300	580
Hire of premises	1,500	1,750	250
Depreciation of equipment	540	540	0
Stationery	510	600	90
Catering	1,500	1,850	350
Insurance	490	470	-20
Administration	1,900	1,850	-50
	----------	----------	----------
	9,160	10,360	1,200
	-----------	-----------	-----------

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	£350
Insurance	£220

The remaining elements of those two costs are variable

4. All other costs are variable

Required:

a. Explain why, without further calculations, the above budget is of limited use to managers and describe the potential behavioural implications of using such a statement may have for the manager.

b. Use the information above to produce a budgetary control statement for January, which will give Hariba more meaningful information.

c. Participation in budgeting is widely considered to be an important aspect of a budgeting system. Explain participation in budget setting and discuss the advantages and disadvantages compared to a non-participatory system.

Question 2
Many public sector departments are currently facing a review in spending. The Craigside Ambulance Service has been asked to consider Zero Based Budgeting (ZBB) as a way of reducing its spending.

Required:

a. Explain how ZBB differs from incremental budgeting.

b. Describe how a system of ZBB would be implemented by The Craigside Ambulance Service. Your answer should describe the different stages and you should use examples to illustrate your discussion.