ACCA Applied Knowledge · Management Accounting · Behavioural aspects of budgeting
Under a participative budgeting system, a manager expects to sell 10,000 units but submits a sales budget of 8,000 units so that the target is easy to beat. What is this behaviour called?
This is budgetary slack. The manager deliberately understates expected sales so the target is easy to beat, building a cushion into the budget. It is a known risk of participative budgeting, where managers have better knowledge of their area than senior management.
- ABudgetary slackCorrect
- BPseudo-participation
- CIncremental padding of fixed costs
- DTop-down target setting
Explanation
Deliberately understating revenue (or overstating costs) to make targets easier to achieve is building budgetary slack. Pseudo-participation refers to management inviting input but then ignoring it. The scenario does not describe top-down setting.
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