Many business budgeting decisions involve choices between thoughtfully dealing with the consequences of company policies and earning extra money by cutting corners. It updates the standard costs whenever costs, prices, or rates change by 3 percent or more.
Organizations must recognize this conflict and have processes in place to ensure both the interests of individual employees and the interests of the organization as a whole are served. Describe the ethical conflict that can occur between the planning and control phases of the budgeting process.
It uses these costs to price products, cost inventories, and evaluate the performance of purchasing and production managers. How does the master budget for a merchandising organization differ from the master budget for a manufacturing organization?
For example, in many countries there are environmental laws. In contrast, fudged numbers are usually the basis for dishonesty and fraud. Furthermore, you are evaluated based on achieving budgeted profit on a quarterly basis this is the control phase.
The control phase requires evaluating performance of employees by comparing actual results to the operating budget. Ethical issues often arise in the budgeting process, particularly when employees and managers are evaluated by comparing their actual results to the budget.
Similarly, corporate officers who earn tremendous bonuses based on company profits may prioritize profit over ethical considerations.