The Following Events Took Place When Managers A, B, and C

question 81

Multiple Choice

The following events took place when Managers A, B, and C were preparing budgets for the upcoming period:
I. Manager A increased property tax expenditures by 2% when she was informed of a recent rate hike by local authorities.
II. Manager B reduced sales revenues by 4% when informed of recent aggressive actions by a new competitor.
III. Manager C, who supervises employees with widely varying skill levels, used the highest wage rate in the department when preparing the labor budget.
Assuming that the percentage amounts given are reasonable, which of the preceding cases is (are) an example of building slack in budgets?

• A) I only.
• B) II only.
• C) III only.
• D) I and II.
• E) II and III.

---

Definitions:

Reporting Entity

A business or organization that is required to prepare financial statements.

Operating Activity

Activities that constitute the primary or main activities of an entity, including cash flows related to sales, expenses, and other core business operations.

Cash Dividend

A direct payment of profits from a corporation to its shareholders, often distributed quarterly.

Equity-Method

An accounting technique used by firms to assess the profits earned by their investments in other companies, by recording such profits as income.