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Budgeting is essential for large companies strategic decision-making, recourses allocation, and determining risks and opportunities. Income and expense estimation enables the teams to set priorities, adjust their operations, and initiate activities that affect every employee (Schmitz, 2020). In the ABC Manufacturing case, budgeting addresses the general aspects, such as expenses, gross profit, revenue, income, and how the rates changed compared to last year. The president cutting the budget and the managers attitude to providing overestimated numbers rather than reasonably calculated might result in problems for the companys operations. This case report aims to discuss the budget process in ABC Manufacturing, its practices in terms of leadership and control, and ethical issues.
ABC Manufacturing is a large company with various recourses and employees involved; however, its next years budget lacks details and expenses breakdown. A statement should be based on existing issues and improvements, forecasting opportunities and external threats to efficiently use operations adjustment and finances allocation (Schmitz, 2020). The supervisors comment about overestimation and willingness to attend a conference is visible in the percentage increase over the last year. Such an influence on monetary sources allocation makes ABC Manufacturings budget process inappropriate because the plan does not address real risks and demands; it demonstrates personal aims and the unreliability of the initial statement.
The practice of cutting the budget diminishes the value of the income statement and challenges proper strategic decision-making. The comment also demonstrates that only one person, the president, has sufficient power to change the companys course of action. Klaorina and Suprasto (2019) state that the approach where superiors have set the budget can result in the ineffective performance because superiors do not know the potential and obstacles owned by managers as executors (p. 61). Regarding leadership, the authoritative style is harmful to ABC Manufacturing because its budget contains sections, such as advertisement, rent, or supplies, that require collaborative decisions in an emergency.
Furthermore, knowing that the initial budget will be modified makes it difficult to operate because money relocation or withdrawal will damage the quality of services. Controlling how sources are distributed and who is responsible for their utilization is challenging because the unstable expenses statement increases corruption risks (Klaorina & Suprasto, 2019). The comment about the president cutting the budget demonstrates the lack of trust between the executive and the team. Employees adapt to inappropriate decisions rather than openly discuss the problematic outcomes of the initial statements modification.
Ethical considerations are also applicable to the budgeting practices at ABC Manufacturing. Indeed, the supervisor who estimated the value of their work by expecting to visit a conference because of their success in achieving budgeting objectives demonstrated that the company does not have a reward system. The ethical issue of evaluating work hours and overall employee contribution occurs because personal factors might influence the bonuses rather than established KPI completion requirements (Endenich & Trapp, 2020). In addition, the recourses allocation might be questioned and claimed unethical as there is no breakdown of the budgets wage section and no information on how the payouts are distributed among employees and managers. Lastly, the direct influence of the presidents decision to cut budgets or an executive team to visit a conference on the companys budgeting is an ethical issue. Finances are necessary for proper operations, and responsible individuals must consider various internal and external factors in their money allocation decision-making.
ABC Manufacturings budgeting practices require revision because factors influencing the executives strategies are inappropriate. The 20% cut expected from a president demonstrates poor leadership and a lack of considering employees conditions. Such budgeting formation approaches cause a risk of corruption and makes controlling the financial allocation unachievable. Ethical issues related to the unequal influence of team members on the decisions and the inability to distribute recourses according to the real needs are also present in the companys practices.
References
Endenich, C., & Trapp, R. (2020). Ethical implications of management accounting and control: A systematic review of the contributions from the Journal of Business Ethics. Journal of Business Ethics, 163(2), 309-328.
Klaorina, M. I., & Suprasto, H. B. (2019). Effect of consideration leadership style on budget participation relationship and managerial performance. International Research Journal of Management, IT and Social Sciences, 6(5), 60-64.
Schmitz, S. O. (2020). Critics of budgeting and its effects on behavior. In The future of management, control is fair (pp. 31-50). Springer Gabler.
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