Budget merits and demerits
Answers
Answer:
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Advantages :
● The major strength of budgeting is that it coordinates activities across departments.
● Budgets translate strategic plans into action. They specify the resources , revenues and activities required to carry out the strategic plan for the coming year.
● Budgets provide an excellent record of organisational activities .
● Budgets improve communication with employees.
● Budgets improve resources allocation , because all requests are clarified and justified .
● Budgets improve a tool for corrective action through reallocation.
Disadvantages :
●The major problem occurs when budgets are applied mechanically and rigidly.
● Budgets can demotivat employees because of lack of participation .
If the Budgets are arbitrarily imposed top down, employees will not understand the reason for budgeted expenditures, and will not be committed to them.
● Budgets can cause perceptions of unfairness.
● Budgets can create competition for resources and politics.
● A rigid Budget structure reduces initiative and innovation at lower levels, making it impossible to obtain money for new ideas.
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