Question

Although most budgeting is in the form of a bottom-up and bottom-up approach, information from almost employees throughout the company is involved in the process. Effective Budgeting of course, will involve those who set goals, and it seems that budgeting in this format is unlikely to be a problem. Do Ethical issues often arise in the budgeting process, especially when employees and managers are evaluated by comparing actual results with the budget?

Conflicts often arise during the planning process and control of budgeting. During the planning phase Organizations need to be cautious so that the projection numbers need to be finite and perfect, which will lead to good results. The process of the control process needs to assess the performance of employees by comparing the actual results with the operating budget. Employees must decide between doing the best for themselves and doing the best for the organization.

Suppose you are a computer manager at High Tech Retail, Inc. You were asked to help prepare a budget statement for the computer department. In each fiscal year, managers will receive a bonus equal to 10 percent of net revenue that exceeds net budget revenue.

Describe the ethical conflict you face as a department manager. To make a budget for your departmental expenses (appropriate or not, you set a budget to pay yourself bonuses).

Answer 1

In the given case, the ethical dilemma faced as a Department Manager is whether to do what is best for himself (i.e set a lower budget of net revenue than actual estimates and receive higher bonus) or to do what is best for the organization(i.e set budget accurately so that it meets actual sales and production requirements).

A departmental budget can be prepared as follows to get bonus:

Particulars	Budgeted(Rs.)	Actual(Rs.)
Sales Revenue	1000000	1500000
Less: Expenses
Cost of Production	(400000)	(500000)
Administration Expenses	(150000)	(200000)
Distribution Expenses	(80000)	(100000)
Net Revenue	370000	700000

Total bonus to manager=10%(700000-370000)

=Rs.33000.