Final answer:
Top-down budgeting refers to the practice where top management takes primary control of the budgeting process, with lower-level managers having limited involvement. This autocratic approach aims to lower the costs of coordination but may raise conformity costs due to lack of engagement from the managers who are closer to day-to-day operations.
Step-by-step explanation:
When top management assumes total control of the budgeting process, with only nominal input from lower-level managers, the practice is termed top-down budgeting. In contrast to bottom-up budgeting or participative budgeting, where lower-level managers play significant roles in decision-making by contributing their insights and estimates, top-down budgeting is characterized by the upper management setting the budget goals and figures. This approach reflects a type of autocratic budgeting, where decisions are made at the top and communicated down the hierarchy without substantial engagement or feedback from subordinate levels. The aforementioned approach seeks to reduce transaction costs associated with coordination and communication but potentially increases conformity costs if lower-level managers lack buy-in or are constrained by the budget in ways that hinder their functional effectiveness.