Question

Budgetary slack provides management with a hedge against planned adverse circumstances.

a-true
b-false

Answer 1

Budgetary slack is a practice where managers intentionally underestimate budgeted revenues or overestimate budgeted expenses to create a buffer or hedge against adverse circumstances. It provides management with flexibility and protection in case the actual circumstances are worse than expected.

Step-by-step explanation:

Budgetary slack is a practice where managers intentionally underestimate budgeted revenues or overestimate budgeted expenses to create a buffer or hedge against adverse circumstances.

For example, if a manager expects a project to cost $100,000, they might budget $120,000 to account for any unexpected expenses. This allows them to have extra funds available if needed.

This practice can provide management with flexibility and protection in case the actual circumstances are worse than expected. It can help to mitigate risks and ensure that the organization has enough resources to deal with unexpected challenges.