One of the Behavioral Considerations in Implementing a Budgeting System

question 135

Essay

One of the behavioral considerations in implementing a budgeting system has to do with the issue of budgetary slack.What are the positive and negative aspects of building slack into budgets from top management's point of view, and the employee's point of view (i.e., the individual responsible for building slack into the budget)?

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Definitions:

Spending Variance

The difference between the actual amount spent and the budgeted or standard amount expected to be spent.

Power Cost

The expense associated with the consumption of electrical power used in the operations of a business or manufacturing process.

Materials Quantity Variance

The difference between the actual amount of materials used in production and the standard amount expected to be used, multiplied by the standard cost per unit.

Raw Materials Price

The cost of raw materials required in the manufacturing process, a critical factor in the overall production cost and pricing strategy.