Question
Which of the following statement(s) is/are true about the budget slack?(Select the correct answer from 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
Answer
4.3
(278 Votes)
Seraphina
Elite · Tutor for 8 years
Answer
Among the given options, only statement (3) "Budget slack is the deliberate over-estimation of costs and underestimation of revenue" accurately defines the concept of Budget Slack and is therefore true.
Explanation
## Step 1: Understanding the concept of Budget SlackBudget Slack can be defined as the intentional over-estimation of costs or under-estimation of revenues to make the attainment of budget goals easier or less stringent. Managers may engage in this practice to allow for unexpected costs or decreased revenues, to enhance their department's performance, or affect allocations of resources.## Step2: Analysing the optionsa) Statement (1) says that "Budget slack is a deliberate under-estimation of costs and overestimation of revenue". As per our definition, this statement is incorrect.b) Statement (2) defines Budget slack as the "difference between the budgeted, and the actual, units of production". This is not the correct definition.c) Statement (3) affirms "Budget slack is a deliberate over-estimation of costs and underestimation of revenue". This matches the understanding of Budget Slack, deeming this claim correct.d) Statement (4) is implying and exaggerating fraudulent or unethical components to Budget Slack by referring to it as "Budget slack is the deliberate falsification of costs and revenues by managers, which is deemed unethical". While it may be viewed as unethical in certain circumstances, such a broad classification begs caution.