Which of the following best describes participative budgeting?

• A. Budgets are set by senior managers without input from budget holders
• B. Budget holders participate in setting their own budgets
• C. Budgets are created by external consultants
• D. Budgets are derived from market research alone

Answer: (B)

Participative budgeting involves the people who will use and be responsible for the budgets in the process of setting the targets themselves. Budget holders actively participate in determining their own budgets rather than having figures handed down by senior managers. This tends to produce more realistic targets because those closest to operations understand day-to-day constraints, and it boosts motivation and commitment since他们 have ownership of the numbers. It also helps reduce budgetary slack, as people are involved in the process and agree to the targets they must achieve. For example, a production manager would help set the production, labor, and materials figures based on capacity and demand forecasts. Budgets created solely by senior leaders, by external consultants, or derived from market research alone lack this direct input from those responsible for delivering the results.