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?

Question

Quizplus · Accepted Answer

Manager C using the highest wage rate in the department when preparing the labor budget is an example of building slack into the budget. This approach can create a cushion by overestimating expenses, which is not necessarily reflective of expected actual costs. Managers A and B are responding to external changes and making adjustments based on new information, not necessarily building slack.

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