ACCA Applied Knowledge · Management Accounting · Behavioural aspects of budgeting
A department's budget is $200,000 of controllable costs. Under a participative approach, the manager proposes a budget of $230,000 by building in extra allowances, and it is agreed. The most accurate description of this behaviour is:
This is budgetary slack. The manager deliberately builds extra cost allowance, here $30,000 above the expected $200,000, into the budget to make the target easier to meet. It is a known risk of participative budgeting and reduces goal congruence.
- ABudgetary slackCorrect
- BIncremental budgeting
- CZero-based budgeting
- DGoal congruence
Explanation
Deliberately overstating costs to make the target easier to achieve is budgetary slack. Here $30,000 is built in above the $200,000 expected need. Incremental and zero-based describe budget methods, not this behaviour, and goal congruence is the alignment of goals, which slack undermines.
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