Question: Budgetary Slack Topic: , Budgeting / Standard Setting Characters: Jennifer, a cost accountant working in a manufacturing division of a large corporation Ron, the budgeting
Budgetary Slack
Topic: BudgetingStandard Setting
Characters: Jennifer, a cost accountant working in a manufacturing division of a large
corporation
Ron, the budgeting and standards supervisor and Jennifer's superior in the
accounting department
Jennifer has been working on next year's budgets for some of the division's products. After
Ron looked over her work, he called her into his office.
Ron: "Jennifer, the budgets look pretty good, except that your estimates of materials costs
seem too low."
Jennifer: "I checked with production and engineering people, and they told me they expect
materials costs to be down. They are trying some new procedures which are almost certain to
reduce materials waste and damage significantly."
Ron: "It's too soon to know how much materials costs will drop, or even if they will be
lower. I want you to redo the budget with materials costs about where they have been for this
year. Then if materials costs are lower next year, the division will beat the budget and look
good. There may be some good bonuses next year."
Jennifer: "Using the current materials quantities puts slack into the budget for next year."
Ron: "Most managers try to get some slack into budgets. There's nothing wrong with that.
Since the new procedures are still experimental, they haven't been reported to corporate
headquarters. This is a perfect opportunity to get an easy budget. I know that's what the
division controller expects and wants. Get the revisions to me as soon as you can."
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