This video discusses several disadvantages of budgeting in Managerial Accounting.
While budgeting helps the company with planning and control, it has several important disadvantages. The budgeting process is time-consuming and may lead to disagreements between managers who are competing for resources. Budgeting may also result in biased forecasts if managers attempt to build slack into budgets. Budgets can also be inaccurate, lead to rigid decision-making (e.g., a company turning down an attractive investment opportunity because it’s not in the budget that was created at the start of the period), and foster a use-it-or-lose-it mentality (e.g., at the end of a period, a manager might spend money because that money, if not spent, won’t carry over to the next period).