Question

NEED REPLY TO THESE TWO POSTS! 100 WORDS EACH.

POST 1:

1. Budgeting is the process of allocating a company's financial resources although ethical issues is seen as a problem or situation that requires a person or organization to choose between different alternatives that must be evaluated as ethical or unethical. During the planning phase the organizations are most concerned about getting right estimates that lead to positive results. The control phase requires evaluating performance of the people working in the company by comparing actual results to the operating budget. They have to see what is best decision for the company at the end.

2. Sales and profit budget that is considerably lower than what will likely happen causes problems for the entire organization. Production can be short of labor or materials the causes inefficiencies to the production process. Selling and administrative support may be lacking due to underestimating sales. Customers will be angry because they have to wait and the person in charge has to do what is best for the company.

POST 2:

1. The ethical conflict that can occur between the planning control phases of the budgeting process is where someone is a manager that assists upper management in planning budget. It is possible that this manager may receive a bonus for meeting quarterly estimated profit. Therefore, if the manager sets this budget low, they are guaranteed to receive a bonus.

2. Underestimating a sales budget can have a negative impact on the organization because it may not allocate funds in order for the manufacturer to be fully functional. Factories may be short on labor and supplies.

Answer 1

Response for post 1:

1. Budgeting acts as a blueprint for the company for each of their respective departments, be it purchases, production or sales. Though the organisations are concerned about right estimates, and also positive results, they also have to look into both internal and external factors.
   1. Internally, they have to see whether in the past they have achieved whatever they have budgeted and whether they have the capacity of achieving the budget forecasts in near future.
   2. Externally they have to check what the industry demands, whether there are new entrants in the market and whether existing competitors may hinder the sales target, thereby production and purchase budget may go off track.
2. Sales and Profit estimates are most sensitive estimates. Although setting a lower budget that is considerably lower than what will likely to happen may cause many problems. Setting an invariably high estimates would also backfire. If sales numbers are inflated, so would be profit. Therefore to sell more, the company will purchase more and produce more. If the supply is more than the demand, the excess inventory will be stocked up thereby resulting in blockage of working capital.

Response for post 2:

1. The budgets as made by management must have rational assumptions. Each and every estimate should have an appropriate basis. It must be reviewed and approved by senior management or other higher authority, if any.
   
2. Underestimating a sales budget can create grave problems, therefore it is recommended that at a point of time when an organisation feels that the budget is estimated lower than what it should have been, it should revise the budgets and make room for increase in numbers subordinated by budget changes of other departments, for eg., purchases and production (Also refer point 2 of response 1)