Randall Corporation, headquartered in Pittsburgh, has a manufacturing plant in Dallas. Plant managers desire to participate in the company's budget efforts, which, for the past 10 years, have been handled solely by top executives in Pittsburgh. Dallas managers feel that by becoming involved, they can make great strides in terms of improving operating performance of their aging facility.Required: Briefly discuss this situation, focusing on the benefits and problems of letting Dallas managers participate in the company's budgetary efforts.

Question

What will be an ideal response?

Answer 1

Participative budgets will make the plant managers feel that their opinions are valued by top management and, generally speaking, the plant managers will have a better attitude about trying to achieve the budget. Additionally, it is possible in this case that the participative approach will result in a more realistic budget document. Pittsburgh personnel may be too far removed from daily activities in Dallas to get an accurate picture of on-going operations.

On the negative side, a participative budget may take longer to prepare and may lead to some local in-fighting when compared with one that is imposed from corporate headquarters. Also, participative budgets may have some padding or slack, as the Dallas managers are faced with an aging facility. This facility may be inefficient and, with their participation, managers may bend the numbers a bit to improve appearance.