Question
Part 2. Planning or budgeting is one of the main functions of management accounting. However, the budgeting process also involves and has impact on
Part 2. Planning or budgeting is one of the main functions of management accounting. However, the budgeting process also involves and has impact on employees' behaviours. Christina Lim has been concerned about these issues during her tenure as a chief director at ABC shoes producer. The company uses a participative budgeting process during which various department managers (in administration, marketing, production, sale) are required to propose a cost or revenue target for their departmental operation. For many years, Christina usually adjusts the proposed targets by 10% and these adjusted targets become the operation or production budgets for the respective departments. Bonus scheme of the department managers depends on whether they can achieve their operation (or production) budget. Required: a. Based on your knowledge of the participative budgeting process, explain any incentive that the department managers might have to be dishonest with Christina about the operation or production level they think their department can achieve. [5 marks]
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