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Budgetary Slack

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Budgetary Slack

  • This topic has 3 replies, 2 voices, and was last updated 4 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • July 18, 2020 at 6:04 am #577254
    teddylove
    Member
    • Topics: 10
    • Replies: 17
    • ☆

    Greetings Sir John, I would like to double confirm my understanding

    For budgetary slack, it is disadvantageous to the top management because
    A) Bottom managers can easily reach the target, which might be not challenging and demanding, this is as a result of participative budgeting. This will serve as a huge disadvantage for competitive advantage of company.

    Budgetary slack always lead to
    1) overstate expenses
    2) understate revenue

    B) For budgetary slack, it is advantageous to the top management because
    1) Reduce the dysfunctional consequences of failure, because the bottom managers can have flexibility and autonomy to control the figures (overspend in one area, underspend in another area, encourage creativity)
    2) Assist top management to counter future uncertainties, an existence of budgetary slack allow manager to control the figures in the budget (controllability principle), as the bottom managers are more well-averse of the operational of the company (info asymmetry)
    3) Budgetary slack upholds participative budgeting, it provides a sense of ownership and commitment to the bottom managers to achieve the target
    4) Assist strategic planning of the company (long term/ profit conscious style)

    However, budgetary slack could only be accepted in certain acceptable circumstances, such as high uncertainties of the future (long term strategic planning). This is to protect the share price of the company, as not attaining the performance target/ budget may lead to a drop of investor confidence.

    I hope you can double confirm my understanding Sir John

    July 18, 2020 at 10:12 am #577284
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54655
    • ☆☆☆☆☆

    Yes, what you have written is fair enough (except it is not really a question of it being advantageous or disadvantageous to top management but to the the company).

    July 19, 2020 at 8:43 am #577348
    teddylove
    Member
    • Topics: 10
    • Replies: 17
    • ☆

    Sir, it is said that Zero Based Budgeting (ZBB) eliminates budgetary slack (which are discretionary costs and support activities) in the fixed budget. Can we incorporate budgetary slack to certain extent in ZBB?

    Or is it only those selective costs like Variable Costs (costs with clear input and output relationship) only can accept budgetary slack to a certain extent?

    July 19, 2020 at 9:48 am #577357
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54655
    • ☆☆☆☆☆

    We do not wish for there to be budgetary slack and would not wish to incorporate it however budgets are prepared.

    Everything relevant for the exam regarding budgeting (including zero based) is explained in my free lectures.

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Budgetary Slack’ is closed to new replies.

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