The sales director of a manufacturing firm intentionally underestimates next year's sales forecast during the budgeting process to ensure the targets are easily achievable and bonuses are secured.

What behavioral budgeting concept does this scenario illustrate?

Answer options:

Goal congruence

Budgetary slack

Top-down budgeting

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How to approach this question

Identify the term used when managers build a 'cushion' into their budgets to protect themselves.

Full Answer

B.Budgetary slack✓ Correct

Budgetary slack (or budget padding) occurs when managers intentionally underestimate revenues or overestimate costs. This makes the budget easier to achieve, protecting the manager against unforeseen circumstances and increasing the likelihood of earning performance bonuses.

Common mistakes

Confusing this with goal congruence, which is the ideal state that budgetary slack undermines.

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