Tuesday, January 7, 2014

Can someone please give an example of budgetary slack?Can someone please answer this question as soon as possible?

Budgetary slack happens when a person or department that
is involved in making a budget manipulates that budget for the sole purpose of making
themselves look good.  In order to do that, they deliberately overestimate the costs
that they will incur or they deliberately underestimate how much product they will be
able to turn out.  This will make them look good later when they are able to do more
than they have predicted and spend less doing it.


You can
easily think of examples of this.  Let's say, for example, that you are the sales
manager for the Northwest Region for a company selling agricultural products.  You
estimate that you will be able to sell 1,000 tons of fertilizer in the first quarter of
2011.  But you know that you are more likely to sell 1,200.  When you do better than
your estimate, you look good.  You have done so by creating budgetary slack -- the
difference between what you said you could do and what you really could do.  This helps
make you look good but it doesn't help your firm.

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