Question 2: Budget (20 marks in total)
Kuipers Manufacturing is a medium sized company that manufactures and markets a range of products. The divisions of Kuipers Manufacturing include whitegoods, kitchenware and outdoor furniture. The senior management team oversees the budgeting process. This includes the managing director, the financial controller, the manufacturing director and the marketing director. Jack Kohler the managing direct of Kuipers Manufacturing, recognises the importance of the budgetary process for planning, control and motivation. He believes that a properly implemented process of participative budgeting and management by exception will motivate managers and their subordinates to improve productivity within their particular divisions. Based upon this philosophy, Kohler has implemented the following budgetary procedures:
Required:
Prepare a report to the senior management team that outlines the advantages and limitations of participative budgeting. In your report describe the deficiencies in Kuipers Manufacturing budgetary process. Recommend how each identified deficiency can be corrected. (500 words maximum)
Advantages of participative budgeting:
There are many advantages of participative budgeting. This includes transfer of information from subordinate to superior, increased job satisfaction, budgetary responsibility & goal congruence.
Limitations:
The major disadvantage of participative budgeting is that too much participation can result in negotiations which can drag & result in unnecessary delay. If the negotiation doesn’t reach an agreement, where the superior may have a final say in the matter it can be detrimental to the business because it can lower the morale of the manager & confidence in the work which he is trying to achieve. Next the attitude of the negotiators can affect the outcome.
Budgetary slack is another undesirable effect, happens because of overestimation of expense that can foster budgetary “gaming” through budgetary slack. Unless incentives to accurate projects are provided, padding the budget can be severe.
Deficiencies:
Recommendations:
Question 2: Budget (20 marks in total) Kuipers Manufacturing is a medium sized company that manufactures...
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