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We understand the basic framework of budgeting and how it is important for profit planning. We learn about responsibility accounting, which dictates that managers should be held responsible for only those costs for which they are responsible. A self$-$imposed budget is prepared with full cooperation and participation of managers at all levels. We discuss the human factors in budgeting and also learn about the master budget and its different interdependent budgets.

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Knowledge Check $01$

Which of the following is not a benefit of self$-$imposed budgets?

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A manager who is not able to meet a budget that has been imposed from above can always say that the budget was unrealistic and impossible to meet.

Budget estimates prepared by front$-$line managers are often more accurate and reliable.

Lower$-$level managers are encouraged to create budgetary slack since they are more knowledgeable of day$-$to$-$day operations.

Motivation is generally higher.