ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Budgetary slack is a built-in cushion in a budget that seeks to increase the chances of the actual performance being better than the budget. There are two ways to accomplish budgetary slack: underestimate the amount of revenue or income to be generated or overestimate the amount of expenses that are to be incurred.

Detailed explanation-2: -Budgetary slack is the deliberate under-estimation of budgeted revenue or over-estimation of budgeted expenses. This allows managers a much better chance of “making their numbers, ” which is particularly important for them if performance appraisals and bonuses are tied to the achievement of budgeted numbers.

Detailed explanation-3: -Budgetary slack can be used for ethical or unethical purposes. For example, if the department is estimated to make $100, 000 in sales for the year, the department management might only estimate making $80, 000 in sales.

Detailed explanation-4: -Budgetary slack is the practice of overestimating the expenses and/or underestimating the projected revenues when preparing a budget statement for the next financial period. It is a cushion created by management or lower-level managers to prepare budget estimates that will not be hard to achieve.

Detailed explanation-5: -Budgetary slack is a financial sum that results from an overestimation of expenses or an underestimation of projected revenue. When creating budgets, a financial professional or manager may predict higher expenses or lower revenue than available data indicates. They may also estimate both high expenses and low revenue.