Final answer:
Managers are more likely to budget higher sales than anticipated when the operating budget is used as a control device. However, this can lead to financial instability if sales fall short. Using the budget as a control device encourages more realistic and conservative budgeting.
Step-by-step explanation:
Managers are more likely to budget higher sales than actually anticipated when the operating budget is used as a control device. This is because they may be motivated to achieve higher sales targets in order to impress their superiors or secure future funding for their department. However, this can lead to unrealistic budgeting and financial instability if sales fall short of expectations.
For example, a manager might project a 10% increase in sales for the coming year to showcase their team's potential. However, if the actual sales only increase by 5%, it can create financial challenges and a budget deficit.
On the other hand, if the operating budget is not used as a control device and managers are aware that their budgets will be adjusted based on actual sales performance, they are less likely to overestimate sales and budget more conservatively.