- Budgetary slack is an allowance set for any extra expenditure that the entity is going to incur in the fore coming period. This is a practice where an ample amount of intentional allowance is introduced in the budget for any other or miscellaneous expenditure the business is going to sustain.
- Translation and definition 'budgetary slack', Dictionary English-English online. Budgetary slack. Example sentences with 'budgetary slack', translation memory. If this were the case, the countries known for their financial and budgetary slackness would.
Definition: Budgetary slack is the practice of underestimating revenues or overestimating expenses when preparing a budget in an effort to make it easier to achieve. In other words, it’s a way for management to prepare a budget with built in flexibility that will allow them to meet the budgeted goals easier.
What Does Budgetary Slack Mean?
This is a common practice in many companies that defeats the purpose of the budgeting process. A true budget must be honest and hold management accountable to the overall financial goals of the company. Many times lower-level management and subordinates don’t want to be upheld to these strict standards and budgetary restrictions.
Rather than communicate honestly about the projected revenues and expenses of their departments, they pad their numbers to give them breathing room and circumvent the boundaries of a tight budget.
Example
– The purpose of this paper is to draw on a small‐scale study that investigated the relationships between the budget‐setting process and slack, and how budgetary, behavioural and contextual factors can affect this relationship, to reconceptualise the phenomenon of budgetary slack as a budget risk management strategy., – A case study method was employed, which enabled the researchers to. Second, budgetary slack is often used to cope with uncertainty. A departemental supervisor may feel confident in the cost projection for 10 cost item. However, the supervisor may also feel that some onforeseen event during the budgetary period could result in unanticipated costs.
Budgetary slack can be used for ethical or unethical purposes. For example, if the department is estimated to make $100,000 in sales for the year, the department management might only estimate making $80,000 in sales. By underestimating departmental revenues, the department might be immune to across the board cuts. In this respect it’s a hedge against company wide programs that could unintentionally hurt the department. Although this can mislead the top-level management, it is done to better the company.
On the other hand, if the department purposefully underestimates revenue to mislead top-level management, it can be unethical. For instance, underestimated sales figures are much easier to hit and could result in bonuses for the department that exceeds the estimated numbers.
Budgetary Slack Example
Cushman serial number id. Whether slack was created in the budget for ethical or unethical reasons, it typically misleads top management to the true profitability of the departments. That’s why it’s important for management to review the prior year’s budget and evaluate the frequency and size of variances between the actual and budgeted numbers. This process might help them correct slack in the current or future budgets.
Budgetary Slack Refers To
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