Budgetary slack exists when revenues are understated or expenses are overstated. Thus, it is easy to attain a budget performance increasing budgeted profitability.
A budget can serve as a control tool. Actual performance results are compared with budgeted. The budget should set the performance standards at a high but attainable level. When a budget is easily achieved, it is said to have budgetary slack in it. When budgetary slack exists, either revenues are understated or expenses are overstated, or both. This makes it difficult to properly evaluate the performance.
Budgetary slack exists when revenues are understated or expenses are overstated. Thus, it allows a manager to be more flexible under unexpected circumstances.
Budgetary slack exists when revenues are understated or expenses are overstated. The projected actual expenses are usually estimated by a manager, those expenses do not appear as budgeted expected expenses though. The projected actual expenses are usually overstated (budgetary slack is added) to be easily attainable.
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