ACCA Applied Knowledge · Management Accounting · Behavioural aspects of budgeting
Which of the following is a recognised disadvantage of participative budgeting?
Budgetary slack is a recognised disadvantage of participative budgeting. Managers who help set their own targets may deliberately understate revenue or overstate costs so the budget is easy to beat. The other options describe benefits of participation, such as commitment, acceptance and use of local knowledge.
- AManagers are less committed to achieving the targets
- BSenior management's knowledge of local conditions is lost
- CBudgets may include budgetary slackCorrect
- DTargets are less likely to be accepted by managers
Explanation
Where managers help set their own budgets, they may build in slack by understating revenues or overstating costs to make targets easier. The other options are advantages or reversed effects: participation usually increases commitment and acceptance and draws on local knowledge.
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