Q4RQ - Horngren'S Financial And Managerial Accounting

Question

What is budgetary slack? Why might managers try to build slack into their budgets?

Step-by-Step Solution

Answer

Budgetary slack means higher expectations for estimated expenses and least expectations for estimated revenues.

Step 1: Meaning of Budgetary Slack

Budgetary slack is an intentional buffer in the budgets created by the management to get better actual results than the budgeted. There are two ways to build slacks in the budget, lower estimations of all the incomes or higher estimations of all the expenses.

Step 2: Managers tried to build slack into their budgets

Building a slack into the budgets might increase the actual performance than the budgeted, and then they will receive a good evaluation. Adding slack can result in less efficient planning and control. It affects the company’s overall performance.