Stabilos is a company that manufactures graphite and coloured pencils. The headquarters of the company is in Malaysia. Stabilos has always embraced change and taken advantage of every opportunity to automate its processes in order to increase production efficiency and the product's quality. There is an opportunity to open sales and distribution centres in Germany. However, until recently, countries in the same region as Germany did not welcome outside trade, and Stabilos did not trade directly with them. However, as many provinces in Germany have become more developed, demand for status goods including Stabilos Graphite pencils has risen. Currently, there is a change in the current trade policy and regulations by the government whereby Germany is now allowed for foreign trade. The management of Stabilos seized this opportunity and have decided to start selling pencils in Germany. This will necessitate the establishment of a new sales office and distribution centre in Germany. The key employees are already in Germany, building up the workforce, customer base, and supply network. The company at present operates a standard absorption costing system. The Finance department uses incremental budgeting to produce budgets on an annual basis. Budgeting is done from the top down within the organisation, with functional managers having very little budget authority. Senior managers would provide the information needed to build up budgets, which are then submitted to the Board for approval. Despite the fact that Stabilos already have numerous experienced managers working in Germany, building contacts, visiting prospective customers and suppliers, looking for suitable locations for their offices, and so on, Stabilos have yet to set any formal budgets. While not all the managers on location are senior personnel, they are likely to be budget holders in various roles in Germany for at least two years following the start-up of its operations, and Stabilos intends to include a bonus element in their remuneration packages that will be related to budget target achievement. Therefore, it has been suggested that the budget for the operations in Germany should be produced using a participative approach to budget setting as opposed to their current budgeting method. Required: (a) You have been appointed as the finance officer of Stabilos and the head of finance has approached you to explain the implication of the implementation of participative budgeting. Explain to Stabilos the FIVE (5) benefits and FIVE (5) drawbacks of adopting a participatory approach to budget setting in the above situation. (20 marks) (b) Explain whether participatory budgeting is an appropriate method for setting budgets for the operations in Germany. (5 marks)