Budgetary Slack
What is Budgetary Slack?
Budgetary slack involves underestimating budgeted revenue—or overestimating expenses.
![bs 1](https://seeaccountingnow.online/wp-content/uploads/2021/08/bs-1.jpg)
How it Works
To form a budget, a business takes past performance data.
![bs 2](https://seeaccountingnow.online/wp-content/uploads/2021/08/bs-2.jpg)
From this information, it sets future performance targets.
![bs 3](https://seeaccountingnow.online/wp-content/uploads/2021/08/bs-3.jpg)
Sometimes, though, the business will need to set targets for a completely new product, for which no previous data is available.
![bs 4](https://seeaccountingnow.online/wp-content/uploads/2021/08/bs-4.jpg)
Or trading conditions have changed, and the future is very uncertain.
![bs 5](https://seeaccountingnow.online/wp-content/uploads/2021/08/bs-5.jpg)
In these situations, the business may go ahead and lay down budgets.
![bs 6](https://seeaccountingnow.online/wp-content/uploads/2021/08/bs-6.jpg)
However, the business may factor in some budgetary slack by underestimating revenue projections.
![bs 7](https://seeaccountingnow.online/wp-content/uploads/2021/08/bs-7.jpg)
At the same time, they may overestimate expense projections.
![bs 8](https://seeaccountingnow.online/wp-content/uploads/2021/08/bs-8.jpg)
© R.J. Hickman 2020