ACCA Applied Knowledge · Management Accounting · Behavioural aspects of budgeting
A sales manager is told that a bonus is paid only if actual sales reach a budget target. The manager knows the true market could deliver sales of $500,000 but negotiates a budget of $420,000. What is this behaviour called?
This is budgetary slack. The manager deliberately sets an easily achievable target, understating expected sales by $80,000, so that the bonus is safe. It harms the organisation because the budget no longer reflects true potential and works against goal congruence.
- ABudgetary slackCorrect
- BIncrementalism
- CPadding of variances
- DGoal congruence
Explanation
Deliberately understating revenue (or overstating costs) so the budget is easy to achieve is budgetary slack. Here $80,000 of slack is built in ($500,000 - $420,000). Goal congruence is the alignment of individual and organisational goals, which this behaviour undermines.
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