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management accounting-Bias Budgets
Finance & Accounting
Pages 8 (2008 words)
Student`s Name: Instructor`s Name: Subject: Date of Submission: 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.
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. ...
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