Question three (word limit: 500 words)

Since budgets affect many people in an organization, they can have significant behavioural implications. Allowing people to participate in setting their own budget targets may improve commitment those targets but create the incentive to build budgetary slack into budget estimates.

Required:

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

1. The business unit managers who must achieve the budget (3 marks)
2. Corporate management (3 marks)

(Total: 6 marks)