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Which one is false? Explain why:
1. Functional budgets should be determined by the accounting staff and then communicated to the functional managers.
2. An accountants role should involve the co-ordination of the individual budgets to the master budget.
It is a very poor question – neither is ‘false’ because a business can prepare budgets any way it wants to!! There are no ‘rules’.
However, the first one is not good. It is better that the functional managers prepare their own budgets – they are then likely to be more realistic and achievable, and more motivating.
The second one is correct (although very badly worded) – the accountant should co-ordinate the individual budgets with each other (e.g. ensure that we budget to produce what we budget to sell) rather than with the master budget. The master budget is prepared from the functional budgets after they have been co-ordinated with each other.
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