Question

Company A uses a heavily participative budgeting approach whereas at Company B, top management develops all budgets and imposes them on lower-level personnel. Which of the following statements is false?
A. A's employees will likely be more motivated to achieve budgetary goals than the employees of Company B.
B. B's employees may be somewhat disenchanted because although they will be evaluated against a budget, they really had little say in budget development.
C. Budget padding will likely be a greater problem at Company B.
D. Budget preparation time will likely be longer at Company A.
E. Ethical issues are more likely to arise at Company A, especially when the budget is used as a basis for performance appraisal.

Answer 1

Participative budgeting process is when all the employees of the company are involved in the preparation of the budget. This approach to budget helps to motivate the employees to accomplish the budget as their involvement was made. The employees would also be satisfied that their appraisal would be based on the performance of the budget. The participative budget has lot of advantages while there are few disadvantage as well. The budget preparation would take lot of time to be prepared since all the employees would be involved. Also there is possibility of budget being overestimated or underestimated by the employees so as to show their better performance for their appraisal.

In companies where the employees are not involved in budget preparation the employees might feel dissatisfied and may not be motivated to accomplish the budget. This budget preparation would not take much time to prepare as only top management are involved. Also there would not be any overestimating or underestimating of budget as in case of participative budget where employees may change the budget as per their requirement.

Therefore, Option C is the false statement as budget padding would be greater in case of company A as employees are involved in budget preparation instead of in company B.