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ACCA Applied Knowledge · Management Accounting · Budgetary control and reporting

A department's budget for the year was $240,000 and managers know that unspent budget is cut next year. In the last month, the manager buys unneeded supplies costing $15,000 to use up the remaining budget. Which behavioural problem does this illustrate?

This is dysfunctional behaviour in which a manager spends the remaining budget to avoid a lower allocation next year. It is common with incremental budgeting. It is not slack, which means deliberately overestimating costs when setting the budget, nor pseudo-participation or controllability.

  1. ABudgetary slack being built into the budget
  2. BSpending to use up the budget to avoid a reduced allocation, which is a dysfunctional behaviourCorrect
  3. CParticipation leading to pseudo-participation
  4. DLack of controllability of the costs by the manager

Explanation

Spending simply to protect next year's allocation is dysfunctional behaviour from incremental budgeting. Slack is about padding estimates when setting the budget, not year-end spending. Pseudo-participation and controllability do not describe the behaviour given.

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