Question

If a manager builds slack into a budget, how would that manager handle estimates of revenues and expenses? Revenues Expenses A. Underestimate Underestimate B. Underestimate Overestimate C. Overestimate Underestimate D. Overestimate Overestimate E. Estimate Correctly Estimate Correctly

Answer 1

Answer:

The correct answer is letter "D": Revenues (Overestimate); Expenses (Overestimate).

Explanation:

A budget slack is a monetary difference in favor of the company planned and created by management to ensure the firm's performance will hit the projected budget. Budget slacks are created when managers overestimate their revenues and expenses. Though, in the long term, this type of practice will only show mediocrity in the business that could be reflected in the stock price of the organization.