ABC Manufacturing: Financial Management

As part of this task, it is required to evaluate the effectiveness of the financial management of ABC Manufacturing. A feature of the annually planned budget is the introduction of changes into it ahead of time, taking into account the fact that their implementation will be curtailed. Employees already know that each of their budget proposals is cut in distribution by exactly one-fifth. Therefore, they deliberately exaggerate the required budget of the company, already taking into account the fact that their boss will cut these budget costs. The use of such a pattern of budget cuts as a regularity seems to be ethically controversial, speaks of gaps in budget planning, and requires adjustments to the practice of financial planning within a given company.

1. One can hardly talk seriously about outstanding financial management in a company where the actions of the president are so predictable and fit into the negative picture of events expected by the employees themselves. Overbudgeting for a company is a natural element of the planning process, in fact, a condition that allows the team to receive sufficient funding. It should be noted that if the ABC company did not exaggerate the budget, their costs would risk exceeding their income, which would lead to a gradual depletion of budgets and, as a result, to a real bankruptcy of the company. Of course, such planning, in which a false picture of the required financial investments is acceptable and even encouraged, is absolutely unacceptable in an enlightened society where an adequate picture of financial distributions is built. The unnatural doubling of the budget for staff training is also far-fetched, without additional justification, and therefore seems like an unnecessary scam.
2. It should be noted that the percentage of adding annual earnings and the cost of goods sold is uneven. The percentage increase in the cost of goods sold (20%) is slightly higher than the percentage increase in annual revenue (15%). This suggests that in the event of a one-fifth cut in the budget, as is standard, the company will not justify this financial decision. The company does not justify a one-fifth annual cut in the budget because it does not pay for this cut with the efficiency of its own sales. The company’s revenue in relation to the previous year does not reach 20%, therefore, such a budget cut seems unjustified and such that it only financially limits the company. In this case, managers clearly exaggerate the budget in each industry by one-fifth, given that it will subsequently be cut by about this percentage by the authorities.
3. This financial maneuver appears to be unethical because it focuses more on creating a false picture of exaggerated performance, giving the impression that the company is spending more resources and therefore producing more output than it really is. In fact, in this case, the inflation of the budget is a corruption scheme, as a result of which the employees who planned the budget acquire additional resources. Companies are not recommended to artificially inflate project budgets because in the end it only risks underestimating the network profit by creating an unrealistic picture of what is happening (Bader, 2022). Given the implications of the Las Vegas legends, there is little doubt that this scheme is not entirely fair. The scheme is unethical and even financially illiterate because it hides the real state of affairs from the authorities, deliberately distorting the picture in order to get additional financial resources into the management. Thus, firstly, a real assessment of the company’s capabilities is required, and secondly, requirements that would reflect the real needs of employees, superiors, and production.

Reference

Bader, J. (2022). Five keys to making money in distribution. The Distribution Team. Web.