3.28 Jun%2003%20Solutions

3.28 Jun%2003%20Solutions - Example 1 Budgeting If budget...

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1 Example 1: Budgeting If budget performance is overemphasized, myopic behaviour can occur where a manager takes actions that improve budgetary performance in the short run but cause long-run harm to the firm. Required : a. Give at least two examples of myopic behaviour that might be encouraged if there is an overemphasis on budgets as a performance measure. b. Discuss ways to discourage or prevent myopic behaviour in managers.
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2 Example 1: Budgeting a. To meet budgeted cost objectives or profits, managers can reduce expenditures for preventive maintenance, for advertising, and for new product development. Managers can also fail to promote employees in order to keep the cost of labour low, perhaps damaging employee morale. Managers may use lower quality materials to reduce the cost of raw materials. In the short run, these actions will lead to improved budgetary performance; but in the long run, productivity will fall, market share will decline, and valuable employees will leave for more attractive opportunities.
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