ExpertEasy2 marksMultiple Choice
ACCA · Question 23 · Budgeting
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?
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:
A.
Goal congruence
B.
Budgetary slack
C.
Top-down budgeting
D.
Feedforward control
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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