Question

Omni, Inc. manages a medical-expense reimbursement program for colleges and universities
throughout the United States. University employees submit claims for reimbursement of medical
expenses from reimbursement accounts established each year by the employees. Omni then
processes reimbursement requests, verifies the legitimacy of each request, computes the
deductible and co-payment required, determines whether the employee's expense reimbursement
account has adequate funds available, and, if applicable, issues a reimbursement check to the
eligible employee.
Omni employs three different types of clerks who manage these reimbursement accounts:
supervisors, senior clerical staff, and junior clerical staff. The supervisors are each paid $50,000
per year, senior clerical staff employees are paid $40,000 per year, while junior clerical staff
employees are paid $35,000 per year. Based on prior experience, for every 150,000 claims
processed per year, Omni needs to budget for one supervisor's position, two senior clerical staff
positions, and six junior clerical staff positions.
Last year, Omni processed 2 million reimbursement claims, and employed 14 supervisors, 30
senior clerical staff employees, and 83 junior clerical staff employees.

Required:
1. Based on the data provided, calculate the cost savings or excess staffing costs for Omni during
the most recent year. (Assume that the policy of the company is to hire only full-time
employees.)
2. a. What managerial insights are suggested on the basis of your analysis?
b. If you were attempting to judge the processing efficiency of Omni's staff, what additional
information might you want to have?
3. Over the years, alternative approaches to traditional budgeting practices have been proposed to
facilitate budget preparation and usefulness. Compare/contrast the following alternative
budgeting approaches to a traditional budgeting process:
a. Zero Base Budgeting (ZBB)
b. Activity-Based Budgeting (ABB)
c. Kaizen budgeting

Answer 1

					Amount($)
1	Last cliams processed			2 million
				Number	Cost per employee	Total Cost
	Cost of Supervisors			14	50000	700000
	Cost of Senior Clerical Staff			30	40000	1200000
	Cost of Junior Clerical Staff			83	35000	2905000
						4805000
	For 150000 cliams cost
				Number	Cost per employee	Total Cost
	Cost of Supervisors			1	50000	50000
	Cost of Senior Clerical Staff			2	40000	80000
	Cost of Junior Clerical Staff			6	35000	210000
						340000
	Based on above calculation cost of 2 million claims is
				340000/150000*2000000
				4533333
		Excess Staffing Cost incurred for 2 million claims				271667
					(4805000-4533333)
2	Management should allocate staff on effective basis to reduce cost and in the present case thay have employed senior and junior clerical staff more than actually required.
3	For analysing performance of employees we additionally need their effective working hours
4	Traditional Budgeting Process
	Traditional budgeting is a method of preparation of the budget in which last year's budget is taken as the base. Current year's budget is prepared by making changes to previous year's budget by adjusting the expenses based on the inflation rate, consumer demand, market situation, etc
	Zero Base budgeting
	Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. Theprocess of zero-based budgeting starts from a "zero base," and every function within an organization is analyzed for its needs and costs.
	Activity based budgeting
	activity-based budgeting (ABB) as a method of budgeting basedon an activity framework, using cost driver data in thebudget setting and variance feedback processes. The most basic form of ABB uses cost drivers (identified through activity-based costing, ABC) to help derive budgets.
	Kaizen Budgeting
	Kaizen is the practice of continually improving processes and reducing costs. The concept tends to yield gradual improvements over a long period of time. This concept can be applied to budgeting by incorporating expected cost reductions into the planned results of a business.