Question

Managers may build slack into their budgets so that their target numbers are easier to attain. What might be some drawbacks to building slack into the budget?

Answer 1

Answer:

This might exceed the spending of management which is against the corporate objective which is to maximize the profits of the shareholders. Furthermore the objective of making the budget is controlling the cost by delivering the responsibilities to lower management. When the managers build slack into their budgets they are actually moving away from the primary objective of making the budget. This is an ethical issue of not manipulation of facts for personal benefits and is considered unethical. The managers will also under-perform because they know the budget is not accurate and the target is easily achievable. Furthermore the cost will also exceed from the achievable level which is again in not in the best interest of the shareholders. The market share of the products might drop because the sales manager is under-performing. The products quality will also drop significantly which will make it harder for the sales manager to achieve the set targets.