Question

A self-imposed budget is a method of preparing budgets in which the company allows the managers of the different departments to prepare their own budgets. These budgets are then reviewed by upper level management.

What are some of the pros & cons related to this type of budget preparation?

Answer 1

Answer)

Advantages of self imposed budget:

1)It improves the moral of the individuals as the views of every individual in every department will be valued by organisation top level management.

2)The targets are genuine and realistic and there will be no scope for aggressive targets.

3)Every department will work together while setting budget which improves coordination amount departments.

4)The employees should work sincerely as the targets are sending by them and they have no excuse.

Disadvantages:

1)The self imposed budget may be very low if employees have incentives if the budget is met.

2)This may lead to inefficiency if not top level management is loose.

3)There may be collusion amoung different departments with different views.

4)Top level management must do the ground work although they don't prepare the budget to know the genuinity of budget.