Respond to…
(Exercise 6-13 – Revised) Select one of the following quotes from the text to discuss. Clearly state whether you either agree or disagree with the comment and support your opinion with at least one scholarly resource. Include in your response an explanation of the major purposes of budgeting. Your initial post should be 200-250 words.
“One major criticism of budgeting is that it is used as a ‘cost reduction’ tool rather than a ‘cost control’ tool. The objective of the budget is to control costs at an efficient level of operation.”
“There are generally three benefits from allowing employees to participate in developing the budget: (1) Employees tend to accept the budget as their own plan of action. (2) Participation tends to increase morale among employees and toward management. (3) Employee cohesiveness is increased, and productivity will also increase if dictated by the group norm.”
“Even though budgets are quantitative tools, considerable emotion is connected to budgeting. The individual in control often sees the budget as a means of getting things done. People being controlled often have feelings of anxiety because their success and promotion are tied directly to the budget.”
I do agree with Schneider’s statement that, “there are generally three benefits from allowing employees to participate in developing the budget: First is that employees tend to accept the budget as their own plan of action. Second is that participation tends to increase morale among employees and toward management. Third is that employee cohesiveness is increased, and productivity will also increase if dictated by the group norm. “Giving employees more responsibilities within the company gives them a sense of pride and self-efficacy. Venkatesh and Blaskovich (2012) believed that increase self-efficacy leads to higher work ethics among employees, whom set specific goals. For example, as a department manager for a retail company I was responsible for sales and profits within my area. Managing the amount of money spent for the number of customer service rep and the price comparison to our competitors. By the company allowing managers to participate in sales and advertisement, it provided a sense of morale among each other and management. Schneider (2012) stated employees that are more involved and hands on with a company’s daily activity. And the third benefit from employee participate would be the increase in self-cohesiveness and productivity because employees even at the lowest level are more in tuned with daily operations. Therefore, it increases their sense of unity and cohesiveness. Budgeting plays a major role in the planning stages of any company. Company owner and managers use forecasting the company’s income and expenditure to predict profitability. Budgeting is the financial game play of how the company were to perform under certain circumstances. It is also a tool used by management to help make decisions and monitor the company’s performance.
References:
Schneider, A. (2012). Managerial Accounting: Decision making for the service and manufacturing sector.
San Diego, CA: Bridgepoint Education
Venkatesh, R. and Blaskovich, J. (2012). The mediating effect of psychological capital on the budget
Participation-job performance relationship. Journal of Management Accounting Research.
Retrieved from http://search.proquest.com/docview/1247638908?accountid=32521
Respond to…
“One major criticism of budgeting is that it is used as a ‘cost reduction’ tool rather than a ‘cost control’ tool. The objective of the budget is to control costs at an efficient level of operation.”
I would have to agree with the above statement, but I don’t necessarily think that it is a negative attribute. Budgeting allows for a person or company to work on bettering themselves financially by allotting specific funds to be spent on certain areas. This can also be done with cost reduction because if a company allots X amount of dollars to be spent on transportation then they know they cannot exceed that about. They will begin to negotiate rates or decide on different vendors. So in my opinion cost reduction and budgeting will go hand-in-hand in making the company function on a more economic level. On another note the level of budgeting and cost saving will untimely help determine the inherit risks that the company will be getting themselves into. According to Sprinkle (2008), “A nonlinear relationship between budget level difficulty and risk taking such that both low and high budget target difficulty encourages risk taking over motivating effort” (p.519).
Sprinkle, G. B., M. G. Williamson, and D. R. Upton. 2008. The effort and risk-taking effects of
budget-based contracts. Accounting, Organizations and Society 33 (4): 436–52.