Instructions: Review the scenario and answer: 1. Choose an everyday project (cle
ID: 387479 • Letter: I
Question
Instructions:
Review the scenario and answer:
1. Choose an everyday project (cleaning up a yard’s worth of fall leaves, hosting a garage sale, or mailing out holiday cards, for example). Prepare a preliminary budget estimate using a top-down approach —
2. Assume you’re the head of household and have the finances of entire family in mind. Then prepare a preliminary budget estimate using a bottom-up approach
3. Assume you’re a child in the family who’s been assigned the work of the project. How did the budgeting process seem different when working with each method? Did the processes produce different budget estimates?
Explanation / Answer
The top-down approach of budgeting is when the top management or team leader will define the budget for a task.
The bottom-up approach is when each individual will make their own budget and shares it with the team leader of top management.
Scenario: Watching a movie
Budget Heads
Top Down Approach
Budget Heads
Bottom-up approach by Head of the family
Cost of fuel-Toyota Corolla
.12 per milex20 miles= $ 2.4
Cost of fuel-Toyota Corolla
.12X20 Miles$2.4
Cost of tickets with popcorns and sodas
$24 x 4 member= $ 96
Tickets Matinee special offer
$ 8x4 =$ 32
Parking charges
Free on Sundays
Parking charges on Sunday
0
Post-movie dinner
$ 200
Dinner
$ 75 just a QSR pick up the order
Total cost
$ 298
Total cost
$ 109.4
Top-down approach by a child
Bottom Down Approach by child
Popcorn
$12x4=$48
$ 6.5x4=$ 26
Sodas
$ 2x4=$ 8
Evian
$ 12
$ 6x2=$12
Tickets
$ 12.5x4=$ 50
$ 12.50 x4=$50
Dinner
$ 300
$ 400
My favorite toy
$ 100
Total cost
$ 410
$ 596
The results were very different because as a child my expectations and heads of the budget would be different compared to the budget made as head of the household. As head of the household, I will like to keep all expenses in mind and also keep an eye on my overall monthly spends. As a child I will budget in a carefree manner without bothering about the inflow or the overall monthly expenses. There is a difference of over 25% to 50% in both the approaches. It is also due to difference in perspective and understanding the larger picture whereby in top-down expenses I have to remain within my budget limits. As a child I am not bound by any limits. I think the top-down approach makes you more cautious and makes you budget with care compared to a bottom-up approach where you can freely spend without worrying about the revenue and inflows.
Budget Heads
Top Down Approach
Budget Heads
Bottom-up approach by Head of the family
Cost of fuel-Toyota Corolla
.12 per milex20 miles= $ 2.4
Cost of fuel-Toyota Corolla
.12X20 Miles$2.4
Cost of tickets with popcorns and sodas
$24 x 4 member= $ 96
Tickets Matinee special offer
$ 8x4 =$ 32
Parking charges
Free on Sundays
Parking charges on Sunday
0
Post-movie dinner
$ 200
Dinner
$ 75 just a QSR pick up the order
Total cost
$ 298
Total cost
$ 109.4