ACCA Applied Knowledge · Management Accounting · Budget preparation
Which approach to setting budgets is most likely to improve manager commitment to the budget but also carries the risk of budgetary slack?
Participative budgeting. Involving managers in setting their own budgets increases ownership and commitment, but it also allows them to build in slack by overstating costs or understating revenues, making the targets easier to achieve.
- ATop-down imposed budgeting
- BParticipative budgetingCorrect
- CZero-based budgeting without managers' input
- DAuthoritative target-setting
Explanation
Participative budgeting involves managers in setting their own budgets, raising commitment and motivation. The downside is that managers may pad costs or understate revenue to create slack, making targets easier to meet.
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