When large numbers of employees are involved in the preparation of budgets in the organization, generally, there are more chances of introducing budgetary slack into the budgets by them so that they can easily achieve the targets.

It is the intentional over-estimation of the budgeted expenses or under-estimation of the budgeted revenue of the company during a point time while preparing the budget.

this reduction of the expenses may also be responsible for hampering the company’s long-term viability. Due to this understatement of revenue, there are chances that the management will also cut the budgeted expenses of the vital function of the company, such as the research and development expenses, advertisement expenses, production expenses, or administrative expenses Administrative Expenses Administrative expenses are indirect costs incurred by a business that are not directly related to the manufacturing, production, or sale of goods or services provided, but are necessary for the smooth functioning of business operations, such as information technology, finance & accounts.

In case there is budgetary slack by the understating of the revenue of the organization.

It could result in a decrease in the efficiency and performance of the company employees because, in that case, the company employees will work only within their capability of attaining the goals.

read more, then budget slack may provide flexibility to the management while performing business operations. Typically, companies extend their product offerings by adding new variants to the existing products with the expectation that the existing consumers will buy products from the brands that they are already purchasing.

When there is uncertainty about the future, as possible in creating a budget for the new product line Product Line Product Line refers to the collection of related products that are marketed under a single brand, which may be the flagship brand for the concerned company.

If the budgeted cost in the company is overestimated, then the expenditures can be shifted to future years.

read more by underestimating for the budgeting purpose.

It is reported annually, quarterly or monthly as the case may be in the business entity's income statement/profit & loss account. So this was the example of the budgetary slack where the manager kept the slack of $ 10,000 in sales revenue Sales Revenue Sales revenue refers to the income generated by any business entity by selling its goods or providing its services during the normal course of its operations. Due to this slack of $ 10,000 ($ 80,000 – $ 70,000) and the lower performance benchmark that the manager concerning actual selling capacity has set, it is more likely that the manager will receive a favorable evaluation and review in the eyes of the top management of the company and might receive the incentive as well for the same. read more from the actual selling capacity of the company. So, to look successful in the eyes of the company’s top management in terms of budgetary performance, the manager reduced the budgeted sales Budgeted Sales The sales budget forecasts the quantity that the entity expects to sell and the amount of revenue generated from the sale of such amount expected in the future, based on the management’s judgment related to the competition, economic conditions, market demands, and market demands past trends. It was done because, in the past years, the company’s top management was not satisfied with the sales performance of the company as there was a vast difference between the budgeted sales they were checking from the past budget of the company and the actual sales during that period.

Still, he shows the budgeted sales to be $ 70,000 for the year by deliberately reducing the budgeted sales by $ 10,000. For example, the manager of the company responsible for preparing the budget estimates that for the next financial year, the company’s sales would be $ 80,000.

Slack meaning