Question

Building in budgetary slack includes:

A) overestimating budgeted revenues
B) underestimating budgeted costs
C) making budgeted targets more easily achievable D) All of these answers are correct.

Answer 1

Building in budgetary slack involves underestimating budgeted costs to create a cushion in the budget.

Step-by-step explanation:

Building in budgetary slack includes underestimating budgeted costs. This practice allows organizations to have a cushion in their budget, giving them flexibility to handle unexpected expenses or deviations from the original plan. By underestimating costs, organizations create a buffer zone that helps ensure they can meet their budget targets even if actual costs end up being higher than anticipated.

For example, a construction project may budget for $10,000 in materials, but by underestimating the costs and setting the budget at $8,000, they create a slack of $2,000. If the actual cost of materials ends up being $9,000, they can still stay within budget and have $1,000 left as slack.

Therefore, the correct answer is Option B) underestimating budgeted costs.