ACCA Applied Knowledge · Management Accounting · Behavioural aspects of budgeting
A department manager's budgeted expenditure for the year is $200,000. Her bonus is paid only if actual spending does not exceed budget. Near year-end she has $12,000 of unspent budget and orders unnecessary supplies of that amount. Which behavioural problem does this illustrate?
This illustrates wasteful spending to use up the budget so that the allocation is not cut next period. It is a dysfunctional behaviour typical of incremental budgeting and rewards based on staying within budget, and it works against the organisation's goals rather than supporting goal congruence.
- ABudgetary slack being created in the budget-setting stage
- BSpending to avoid losing the budget allocation in the next periodCorrect
- CZero-based budgeting being applied correctly
- DImproved goal congruence through full use of resources
Explanation
Managers who fear that underspending will lead to a lower budget next year spend the remainder before year-end, even wastefully. This is a recognised dysfunctional behaviour linked to incremental budgeting. It is not slack creation at the setting stage, and it harms rather than improves goal congruence.
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