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ACCA Strategic Professional · Advanced Performance Management · Budgetary planning and control

Marlow Engineering's finance director says the budget process is mainly used to gain managers' commitment to targets. Managers set their own budgets and discuss them with superiors before approval. Which feature of this system is most likely to follow from this approach, compared with an imposed budget?

Participative budgeting creates a greater risk of budgetary slack. Managers who set their own targets may understate revenue or overstate costs to make targets easier. Imposed budgets give stronger strategic alignment and speed, but participation tends to improve commitment and use of local knowledge.

  1. AGreater risk of budgetary slack being built inCorrect
  2. BCloser alignment of budgets with the top management's strategy
  3. CFaster preparation of the budget
  4. DLess need for negotiation between levels

Explanation

Participative budgeting improves motivation, commitment and use of local knowledge, but gives managers the opportunity to build in slack by understating revenue or overstating costs. The other options are advantages of imposed budgets: strategic alignment, speed and less negotiation.

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