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Solve: Preparing Budgets

Let's take a look at budgets. If anything, a budget is simply a report of expected results over a period. These can be operational, financial, or strategic.

You are an individual within the finance area of your company, and you are preparing final budgets to present to your board of directors for the coming year. You have been approached by managers all in different areas of the company asking you to forecast expenses at double your initial expectation, while another group has asked you to forecast expenses at only 10% of your initial expectations. When you choose to follow a method, you must apply it equally over the organization.

Make your decision on how you would change your expense allocation and prepare an argument for it, backing it up with what the short and long term effects of your decision will likely be, and how this will affect your day-to-day operations. In this case also consider the motivation for such a request.

Remember: you don't have a choice of a middle ground-it's 10% of original budget reducing it by 90% or doubling the original budget. You should be able to sum up your point of view in less than one page of written text.

Can you please help me with this question and give me some ideas on how to start.

Solution Preview

Since, you don't have a choice of a middle ground, it is either 10% of the original budget that is reducing it by 90% or doubling the original budget. Since you choose a method it must be applied equally over the organization, the selected method is 10% of the original budget. Since, I am an accountant I must follow the principle of conservatism. This means that if doubt exists between two alternatives, the accountant should choose the alternative that will result in lesser asset amount. In this case you ...

Solution Summary

The solution explains the problems of budgeting faced by a finance officer. References are also included with this solution.