Question
Question 1 Which of the following statement(s) is/are true about the budget slack? (Select the correct answer those listed below the following statements). (1) Budget slack is the deliberate under-estimation of costs and over estimation of revenue (2) Budget slack is the difference between the budgeted, and the actual units of production (3) Budget slack is the deliberate over-estimation of costs and under-estimation of revenue (4) Budget slack is the deliberate falsification of costs and revenues by managers, which is deemed unethical (3) and (4) are correct (1), (2) and (3)are correct (1) and (3) are correct
Answer
3.8
(282 Votes)
Oscar
Elite · Tutor for 8 years
Answer
'(3) and (4) are correct'
Explanation
## Step1:The first step is to understand what budget slack involves. Budget slack can be defined as the deliberate overstatement of budgeted expenses or the purposeful understatement of revenues by the party responsible for meeting the budget. This is usually done to make the achievement of the budget much easier. ## Step2:Using this definition, we should analyze each statement provided in the question.### **Statement 1:** Budget slack is the deliberate under-estimation of costs and over-estimation of revenue. This is not correct. Budget slack involves over-estimation of costs and under-estimation of revenues, not vice versa. ### **Statement 2:** Budget slack is the difference between the budgeted, and the actual, units of production. Also incorrect, as this describes more broadly discrepancies that can occur due to a variety of issues during production, and doesn't specifically relate to the purposeful adjustments that are indicative of budget slack.### **Statement 3:** Budget slack is the deliberate over-estimation of costs and under-estimation of revenue. This is right in line with the definition of budget slack given in step 1.### **Statement 4:** Budget slack is the deliberate falsification of costs and revenues by managers, which is deemed unethical. Although this statement phrased it differently, it captures the essence of budget slack with the term 'deliberate falsification', even including the concept that it is generally not considered ethical business behavior.