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Discuss the relevance of traditional budgeting and standard costing in the contemporary business

According to Jensen (2001), “Corporate budgeting is a joke and everyone knows it. It consumes a huge amount of executives' time, forcing them into endless rounds of dull meetings and tense negotiations. It encourages managers to lie and cheat, lowballing targets and inflating results, and it penalizes them for telling the truth. It turns business decisions into elaborate exercises in gaming. It sets colleague against colleague, creating distrust and ill will. And it distorts incentives, motivating people to act in ways that run counter to the best interests of their companies”. During the late 1980s, academics such as Johnson and Kaplan (1987) argued that standard costing and variance analysis were inadequate for cost control and performance evaluation purpose due to the changing competitive environment. Required: Discuss the relevance of traditional budgeting and standard costing in the contemporary business environment.

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