ACCA Applied Knowledge · Management Accounting · Behavioural aspects of budgeting
Managers at a company deliberately overstate their expected costs and understate expected revenues when preparing budgets so that targets are easy to meet. What is this behaviour called?
This behaviour is budgetary slack: managers pad budgets by overstating costs or understating revenues to make targets easy to hit. It distorts planning and wastes resources. Goal congruence is the opposite idea, where manager aims align with organisational aims.
- ABudgetary slackCorrect
- BIncrementalism
- CGoal congruence
- DRolling forecasting
Explanation
Building in a cushion by overestimating costs or underestimating revenues is budgetary slack. It makes targets easier to achieve but reduces planning accuracy and efficiency. Goal congruence is the alignment of individual and organisational objectives, which slack undermines.
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