Accounting for Decision Makers -Discussion Question - Assignment Example

Budgetary Slack with Ethical Considerations Budgetary Slack with Ethical Considerations Budgetary slack is a planned over-estimation or under-projection of revenue needs and use in a company by the financial managers (Hartgraves & Morse, 2015). Bailey’s list of considerations is a mix of excellently thought-out decisions to curb any financial crisis rising from budgetary slack. The list preserves care for ethics in the industry such that management will have no legal case against Karen. All the items on the Bailey’s list will create a budgetary slack: the items give the financial a chance to play with values while avoiding constraints.

For example if the top quartile is $12000 and the wage and salaries amount to $10000, then this is a slack. As an example for the second item, if the highest budget value was $154967 while the required budget for next year is less than that, this is a slack. The third item will create a budgetary slack because more money will be used to correct the situation. If $5400 gave the poor results, more dollars will be needed next year. Including depreciation value in the purchase budget will increase cost slightly: this is a slack too.

For example if equipment costs $392 today while its charge is $8, the budgeted cost then becomes $400. Inflation rate and fixed cost to the estimates of purchase will slight relax the budget: for example budgeting with $450 for a facility that costs $400 today. Lastly, new employees require higher cost to make labor efficient. Using this cost for approximation of labor efficiency would create a slack. An example would be budgeting for an average $211 for labor efficiency of new employees while only about $110 dollars would be used for the same.

I believe Bailey can justify the built-in budgetary slack to the company. The manager may need to explain would benefit the company like preventing frequent returns to the budgeting table or frequent withdrawal of projects. I would suggest for Bailey to improve the company’s budgeting by use of automated systems such as excel spreadsheets for budgeting and driver-based metrics (Hartgraves & Morse, 2015). In addition, honesty between departments and management should be maintained so that none is taken for a ride.

ReferencesHartgraves, A. & Morse, W. (2015). Managerial Accounting, (7th Ed.). Westmont, IL: Cambridge Business Publishers.