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Management accounting-Bias Budgets - Coursework Example

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Question One (a): Why do managers want to manipulate their budgets? After budget approval, the company may use it to carry out budgetary actions. As a result, the managers use it to ensure they carry out the organization objectives and plans and in the end, they have to compare budget plan against the real performance. Once compared, the difference in amount is usually the budget deficient or bias which is cause by manager`s manipulation or distortion on the proposed budget. There are various reasons as to why mangers manipulate budget. Firstly, if the rewards and motivation through performance evaluation help to achieve the budget results, the managers may end up manipulating the budget to include more of rewards in order they can hit the target more easily like league table and bonuses. Besides, managers are highly involved in cases of budget slacks-where organization set their revenue to be too low and a high cost, the organization may end up losing sales since the resources required to raise production with the short time given have been limited. Moreover, the managers who have been promised some rewards on attaining certain goals set their target to be very low such that they easily attain them without caring whether the company looses or gains. Likewise, the senior managers dictate on a budget for performance. As a result, it forces the mangers to keep focus of resources on the performance of their department. Consequently, the mangers end up presenting a budget request biased on his department not for organization as whole. Hence, the direction of bias is downwards. Secondly, the company`s practices and norms is subtle in determining the performance of the company`s budget. Notably, prevailing work conditions help to dictate what is morally right. As a result, the management, which focuses on self-manager performances, will give incentives directed to managers alone. However, the aggregate accounting performance from his action is focusing on organization as whole. On the other hand, the management focusing on others gives a hard determination of degree of performance. As a result, it reduces the aggregate performance although it induces co-operation and collaboration to other firms. Moreover, when there occurs some change in the budgetary system from being top-down or centralized, and an acceptable estimate of growth is set, with the changing budgetary system to may be bottom up, and company`s practices remaining similar, bias of unknown direction happens. Lastly, the mangers may feel insecure in their job and as a result, they are more than ready to use the budgetary trick when a chance arises. By this, it mean, the managers are quick to spend until the entire budgeted amount is consumed when the chance of buying goods occurs at a lower price. In fact, in the managers operating in the declining sales department makes use of entire budgets usage under the assumption that the future is uncertain. As a result, the budget becomes wasteful at the expense of the manager approving his need of upholding the job since the amount needed by the company and the bought one is very varying. Hence, strong upward bias occurs. (b): Why are they able to do? What are the constraints on such behaviour? As a long as the departmental budget exists, some head of the department will always try to game the budget. Additionally, there are numerous reason as ...Show more
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Student`s Name: Instructor`s Name: Subject: Most companies’ top officials are the one responsible of approving the budget prepared by their juniors. The approved budget then becomes the guide on the use of company in the following financial year…
Management accounting-Bias Budgets
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