ACCA Applied Knowledge · Management Accounting · Behavioural aspects of budgeting
Managers in a participative budgeting system deliberately overstate expected costs and understate expected sales when proposing their budgets. What is this behaviour known as?
This behaviour is budgetary slack: managers build a cushion into their budgets by overstating costs or understating sales so targets are easier to meet. It is a risk of participative budgeting because managers know their own areas better than senior management does.
- ABudgetary slackCorrect
- BGoal congruence
- CIncrementalism
- DPseudo-participation
Explanation
Building in a cushion by overstating costs or understating revenues makes targets easier to achieve; this is budgetary slack. Goal congruence is alignment of individual and organisational goals. Pseudo-participation is where managers are consulted but their views are ignored.
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