Question

What is a disadvantage of budgeting?

a.) Budgets provide short-term guidance only.

b.) Budgets make it more difficult to coordinate the activities of the entire organization

c.) Budgets can incorporate too much slack when participative budgeting is used.

d.) Budgets are of little value in uncovering potential bottlenecks.

A self-imposed or participative budget is used in order to?

a.) Prevent budgets that generate undeserved bonuses

b.) Set budgets that reflect the most ideal circumstances possible

c.) Set budgets with a lot of slack to ensure the budget will be met.

d.) Prevent unrealistic budgets imposed by top managements

Answer 1

Correct choice is c) Budgets can incorporate too much slack when participative budgeting is used.

Slack is most common when a company uses participative budgeting, since this form of budgeting involves the participation of a large number of employees, which gives more people a chance to introduce budgetary slack into the budget.

Correct choice is d.) Prevent unrealistic budgets imposed by top managements.

As we know that middle or lower level manager who is not able to meet a budget imposed from top level, can claim that it was unrealistic. Self-imposed budgets eliminate this excuse, as it is prepared with involving operational managers in the budgeting process.

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