Draw up a budget for each of the programmes, covering all direct and indirect costs. – Original

Question 1: Cost classification (5 marks)The provision of library services by municipalities is a contentious issue, as it is seen as unfundedmandate. In terms of Sections 35 to 37 and 44 of the Local Government: Municipal FinanceManagement Act, Act 56 of 2003 (MFMA), it is essential that costs relating to the provision of such aservice are properly analysed and classified. In the particular case under investigation, costs relatingto a branch library include library staff salaries; equipment such as code scanners, computers andcopiers; library materials such as stationery, exhibition materials and some products available forlending not provided by the provincial department; asset maintenance costs; services, includingelectricity, water and waste services; security services; ICT services; financial services; HR services andservices contracted in for projects such as art exhibitions, motivational speakers and reading clubs.This branch library is part of civic centre in a sub-region of the municipality and cannot measureconsumption services for the library alone. It also shares security services with other users of thecomplex. The municipal maintenance team provides maintenance and all other support services arealso shared with other municipal functions. Classify each of the following costs by traceability (director indirect) and behaviour (fixed, mixed or variable):a. Salary of the branch librarian;b. Salary of the City Manager;c. Book lending issuing unit costs;d. Library equipment;e. Civic centre services (electricity, water, waste).Question 2: Area Office Budget (8 marks)The Area Office of the Department of Social Services provides services to approximately 200 000people. It has three programmes or services, each functioning as a cost centre, meaning that all direct and indirect costs must be considered in pricing the services. The following services (programmes) will be provided to the community:1. Program 1 – Payment of social assistance grants2. Program 2 – Social welfare services3. Program 3 – Development and indigent supportAll costs that cannot be exclusively allocated to a particular programme (indirect costs for thatprogramme) are clustered under office administration. These costs are:
Salaries of social workers other fieldworkers: R7 505 112Salaries of administrative staff: R4 905 112Lease and maintenance of offices: R1 605 112Municipal services: R305 112Telephone: R205 112Office equipment: R355 112Stationery: R85 112General Transport: R225 112Note: The time of social and other field workers not spent in programmes is spent on officeadministration. HINT: Use time spent per programme by social and field workers as allocation basefor all indirect costs.Programme 1 – Payment of social assistance grants will have the following activities:12 visits to various payment support points, with a distance of 2 800km travelled per visit. Fieldworkers are using own cars and are paid R4.50 per km travel allowance. No visits require staying over.Social workers and fieldworkers spend approximately 15% of their time on this programme.Programme 2 – Social welfare services will have the following activities:Prevention of substance abuse campaigns at schools in the area, requiring a total of 22 000km to betravelled per annum, and a travel allowance of R4.50 per km is payable. These campaigns also require campaign materials to be acquired, costing R30 per learner, with approximately 70 000 learners in the area.Treatment of substance abuse require intense medical and social care, with 40 000 km to be travelled per annum (travel allowance of R4.50 per km) and materials and equipment to be used to the value of R13 000 per beneficiary, with approximately 200 people expected to be treated.Services to older persons require social workers to provide support at senior centres in the area, requiring 6 000km traveling per annum (travel allowance R4.50 per km) and materials and equipment to be used to the value of R4000 per older person per annum, with an expected 2 000 older people participating.Services to children, women and families require 18 000km to be travelled per annum, with again travel allowances of R4.50 per km and materials to be used to the value of R4 800 per case per annum, with 600 cases expected.Social workers and fieldworkers spend approximately 55% of their time on this programme.Program 3 – Development and indigent support services will have the following activities:Youth development initiatives, requiring a total of 4 000km of traveling with travel allowances of R4.50, materials of R1 600 per beneficiary, with 2 000 expected to participate. It also requires rental of halls and buses, costing R16 000 per event, with eight events planned for the year as well as provision of four meals per participant, costing R18 per meal.Poverty alleviation initiatives, requiring 1 000km traveling with travel allowances of R4.50 per km ,payment to expert facilitators (R39 000 per initiative, with four planned initiatives) and renting of facilities and buses, costing R26 000 per initiative as well as eight meals per participant, with a total planned participation at the initiatives of 400 and a price of R25 per meal.Social workers and fieldworkers will spend approximately 20% of their time on this programmeDraw up a budget for each of the programmes, covering all direct and indirect costs.
Question 3: Net present value calculation using formula (4 marks)The branch library needs to replace its copier, as the current copier has reached the end of its lease term. One option is to replace the leased copier by buying a copier at a price of R65 112. This will reduce the annual operating cost by R14 900. Use a discount rate of 8 percent, and the discount table on p105 of Burger (2014). What will the NPV be after four years? What will the NPV be after five years?
Question 4: Payback & ARR (Average rate of return or Accounting rate of Return) 4 marksThe old copier mentioned in question 3 can either be replaced by a copier (1) costing R65 112 and lasting five years and costing R7 000 per annum to operate (all operating expenses included). The copier saves R14 900 per annum on the cost of currently leasing a copier. Or (2), it can be replaced by a copier costing R75 112 and costing R4 000 per annum to operate and lasting seven years, also saving R14 900 per annum on the current cost.What is Payback Period of each option? Which copier should be purchased, using Payback?What is ARR Percentage for each option? Which copier should be purchased, using ARR?
Question 5: Cost Effectiveness Analysis of Gariep YDC using discount table (14 marks)The Department of Social Development is planning a youth development initiative provided to approximately 500 people in the community of Gamka. The objective is to involve approximately 100 people per annum and continue for five years. They have two options to serve this objective, namely to set up a youth development centre (YDC) in Gamka with adequate accommodation and equipment, as well as development and support staff, or to transport participants to another centre at Beaufort for their activities, where only materials and a smaller provision for staff is required additionally, other costs would be covered by the normal budget of the Beaufort Centre.Do a cost effectiveness investment appraisal, using a discount rate of 8% and the discount table on p105 of Burger (2014).Further information on each of the two options is as follows:
Option1: New Gariep YDC:The lease of suitable accommodation will require an immediate deposit of R35 112;In year one, rent of R135 112 is payable, thereafter escalating at 8% per annum;Equipment requires an immediate outlay of R265 112;Staff remuneration, R395 112 in year one, escalating at 7%;Electricity and telephone costs will amount to R95 112 in year one, escalating at 8% per annum;R275 112 is allowed for maintenance in year one, escalating at 5% per annum;Materials will require R85 112 in year one, escalating at 6% per annum;Transport to Beaufort YDC:A contractor to transport the learners to Beaufort and back at a cost of R605 112 in year one,escalating at 10%; Materials will require R75 112 in year one, escalating at 6% per annum;Staff remuneration of R165 112 is required in year one, escalating at 7% per annum.
Question 6: Breakeven analysis for youth development initiative (5 marks)The Social Development regional office is planning a youth development initiative. The budget allows R8 200 (USP) per participant. How many participants must they take if the following costs are to be considered?• Material: R1 600 per participant (UVC)• Meals and refreshments: R650 per participant (UVC)• Allocation of indirect costs: R1 700 per participant (UVC)• Transport by bus: R15 112 (FC)• Venue hire R45 112 (FC)• Youth Development Facilitator R15 112(FC)• Insurance R5 112 (FC)• Allocation of indirect costs R5 112 (FC)

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