Greg Weetman is the controller of a large security technology firm. He is currently preparing the annual budget and reviewing the current business plan. The firms business unit managers prepare and assemble the detailed operating budgets with technical assistance from the corporate accounting staff. The business unit managers then present the final budgets to the corporate executive committee for approval. The corporate accounting staff reviews the budgets for adherence to corporate accounting policies but not for reasonableness of the line items within the budgets. Greg is aware that the upcoming year for the firm could be a difficult one because of a major patent expiration and the loss of licencing agreement for another product line. He also knows that during the budgeting process slack is created in varying degrees throughout the organization. Greg believes that this slack has a negative effect on the firms overall business objectives and should be eliminated where possible.

Required:

Define the term budgetary slack (1 mark)

Explain two disadvantages of budgetary slack from the point of view of

The business unit managers who must achieve the budget (2 marks)

Corporate management (2 marks)