Many people believe the budgeting process is wasteful and ineffective. They maintain that

managers spend too much time focusing on budgeting mechanics and not enough time on

strategic issues. They believe that emphasis on the budgeting process causes managers to

neglect more important matters such as eliminating non value adding activities that waste

resources. Critics of the budgeting process also maintain that the information and format that

managers use in budgets fail to communicate the short term business activities needed to

achieve long term goals.

Required:

 Prepare a memorandum to your company’s owner justifying the need for budgeting. Also

suggest ways to make the budgeting process, the budget information and the budgets

themselves efficient, effective and meaningful.

2. Cianna Highway is the manager of the repairs and maintenance department of KJ Industries. She

is responsible for preparing her department’s annual budget. Most managers in the company

inflate their budget numbers at least ten percent (10%) because their bonuses depend by how

much below budget their departments operate. Highway turned in the following information for

her department’s 2025 budget to the company’s budget committee:

Budget 2024 Actual 2024 Budget 2025

Supplies 20,000 16,000 24,000

Labour 80,000 82,000 96,000

Utilities 8,500 8,000 10,200

Tools 12,500 9,000 15,000

Handcarried equipment

25,000 16,400 30,000

Cleaning materials 4,600 4,200 5,520

Miscellaneous 2,000 2,100 2,400

TOTALS 152,600 137,700 183,120

Because the figures for 2025 are twenty percent (20%) above those in the 2024 budget. The budget

committee questioned them. Highway defended them by saying that she expects a significant increase

in activity in her department in 2025.

Required:

 What do you think are the real reasons for the increase in the budgeted amount?

 What ethical considerations enter into this situation?