An article in Management Accounting concluded that there will always be some budgetary padding in any organization.
(a) As management accountant, write a report to your finance director, explaining what steps can be taken by you, and by senior management when approving budgets, to minimize budgetary slack.
(b) The finance director, having read the report referred to in part (a), discussed the problem with the managing director and suggested that appropriate action be taken to reduce
budgetary slack. The managing director expressed doubts, stating that in his opinion removing all budget padding could cause considerable problems.
Explain the arguments that can be advanced for accepting some budgetary slack, and the advantages of this to the manager being appraised and to the organization. Discuss whether the budget review and approval process should permit managers to build in some budgetary slack.