Question

what is rational budget allocation and budget allocation? what is the difference?

Answer 1

Rational Budget Allocation is an Economic term whereas Budget Allocation is more of an accounting term.

Budget Allocation refers to the allocation of available funds towards every expenditure requirement for operating an entity according as the priority.

For example:- A company would allocate funds while budgeting for maintaining their working capital while set aside funds for dividend payment only after they are left with profits post tax payment and owner managers share.

Rational Budget Allocation refers to the allocation of funds towards different budget categories with respect to their marginal rates of return from each category so as maximise the returns from or the objectives of the investment ( be it be any project or operations of a company).

For example:- If we consider that the return from a company's operations are dependent upon various budget categories such as funds for operations, funds for employee wages , funds for perquisites to managers etc then eacch of this independent factor has a coefficient which yields the their marginal return. When elasticity of each of these returns are considered and funds are allocated accordingly one can optimize the production value yielded by the company . This is rational budget allocation.

NOTE:- You may want to have a look on the Paper by Stuart S Nagel " the theory of rational and feasible budget allocation" for further clarity.