Question

Which of the following is true regarding line-item budgets? a. Line-item budgets reduce possible managerial opportunism and are prevalent in governments b. All of the answers are correct c. Line-item budgets reduce agency problems d. Line-item budgets refer to to budgets that authorize the manager to spend only up to the specified amount on each line item

Answer 1

A line item budget is a detailed budget where item wise budgeted expense is shown for each department or cost centre.

A template of budget is prepared which is filled up by department managers and then approval is obtained from the approving authority. These type of budgets , though time consuming, are easy to prepare by the department managers, more accurate and helps better in communicating and controlling costs.

A line item budget authorizes managers to spend only specified amount in the line item.

For example , there may be a program budget with specified line items like salary, travel, consultancy fees, material purchase etc. consisting of total program expense.The manager cannot spend more on material purchase than the specified amount , even if the total program expense is within limit

d. Line-item budgets refer to budgets that authorize the manager to spend only up to the specified amount on each line item