ACCA Applied Knowledge · Management Accounting · Behavioural aspects of budgeting
Which of the following is the main behavioural disadvantage of participative budgeting?
The main disadvantage is that managers may build budgetary slack into their budgets by overstating costs or understating revenues so targets are easy to achieve. Participation brings local knowledge and commitment, but it also gives managers the opportunity to pad budgets for their own benefit.
- AManagers are less aware of the organisation's overall objectives
- BBudgets take no account of local operating knowledge
- CManagers may build budgetary slack into their own budgetsCorrect
- DTargets are always set too high to be achievable
Explanation
When managers help set their own budgets and are judged against them, they may deliberately overstate costs or understate revenues to make targets easy to hit. This is budgetary slack. The other options are not typical results of participation; local knowledge is actually a benefit.
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