Question

Please answer this question in details . this lecture is about The master budget is a picture of the strategic plan’s projected results in financial terms. you will learn the purpose of the master budget and how it is compiled from functional area budgets within an organization.

In different textbooks praise the benefits of participative budgeting.

Is it wise to involve multiple parties at multiple levels in the organization in the budget preparation process? Why or why not? Embed course material concepts, principles, and theories (requires supporting citations) along with at least one scholarly, peer-reviewed reference in supporting your answer.

Answer 1

Budgeting is the process of creating a plan to spend your money. This spending plan is called a budget. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do.

Why is budgeting important and for whom?
Budgeting is important for EVERYONE! Everyone should budget. Because a budget helps you get ahead of your money, take control of your money goals, punch debt in the teeth and knock it out of your life forever, and so much more. No matter your money background, a budget is for you.
Benefits of budgeting:-
1. Aids in the planning of actual operations.
2. Coordinates the activities of the organization
3. Communicating plans to various managers.
4. Motivates managers to strive to achieve the budget goal
5. Control activities
6. Evaluate the performance of managers

Master Budget:-
A master budget combines all of the smaller budgets within your business and turns them into one overall budget, so you can get a comprehensive overview of your firm’s finances. The master budget includes the HR, marketing, and all other departmental budgets to produce an overall single budget.

Most organizations will create a master budget—whether that organization is large or small, public or private, or a merchandising, manufacturing, or service company. A master budget is one that includes two areas, operational and financial, each of which has its own sub-budgets. The operating budget spans several areas that help plan and manage day-to-day business. The financial budget depicts the expectations for cash inflows and outflows, including cash payments for planned operations, the purchase or sale of assets, the payment or financing of loans, and changes in equity. Each of the sub-budgets is made up of separate but interrelated budgets, and the number and type of separate budgets will differ depending on the type and size of the organization. For example, the sales budget predicts the sales expected for each quarter. The direct materials budget uses information from the sales budget to compute the number of units necessary for production. This information is used in other budgets, such as the direct materials budget, which plans when materials will be purchased, how much will be purchased, and how much that material should cost.

The following are examples of operating budgets:- Sales budget, production budget, direct material budget, Direct labour budget,Selling and administrative budget, manufacturing overhead budget.
The following are the examples of Financial Budget:- cash budget, capital expense budget.

PARTICIPATIVE BUDGETing:-

Participative budgeting is a budgeting process in which the people who are in the lower levels of management are involved in the budget preparation process. Unlike the imposed budgeting process, participative budgeting shares the responsibility with lower-level managers to give them a sense of ownership in the business.

Advantages of Participative Budgeting

The following are some of the benefits of implementing a participative budgeting approach in an organization
1. Transfer of information upwards-One of the advantages of participative budgeting is the sharing of information from departmental-level managers to top management. It means that subordinate managers are given the opportunity to present their views on certain organizational issues.

2. Employee motivation-When employees are involved in the budget preparation process, they get to own a part of the budgeting process. It gives them a sense of ownership when their suggestions are taken into account by senior management.

3. Goal congruence-Goal congruence refers to the agreement between the employee’s goals and the overall company goals. In order for the company to create a budget that is achievable, both the management and the staff must set goals that move in the same direction.

Disadvantages of Participative Budgeting:-
1. Time-consuming-The most common limitation of a participative budget is that it is time-consuming compared to an imposed budget. Since the budget preparation starts from the department level to the top, too much participation may occur that may derail the process.
2. Budgetary slack-The other limitation is budgetary slack. The employees may overestimate the costs and/or underestimate the revenue projections as a way of manipulating the budget to their advantage.