(CMA Adapted) C21-45. Budgetary Slack with Ethical Considerations Karen Bailey was promoted to department manager of a production unit in Parkway Indus three years ago. She enjoys her job except for ment's budget. After three years of consistently poor annual evaluations based on a set annual bud- get, she has decided to improve the evaluation situation. At a recent budget meeting of managers, the topic of budgetary slack was discussed as a means to maintain budgeting matters. As a result of this meeting, Bailey decided to take the following steps in prepar- ing the upcoming year's budget: 1. Use the top quartile for all wage and salary categories. 2. Select the optimistic values for the estimated production ranges for the coming year. These are LO5 the evaluation measures that are based on the depart- junior-level consistency in some provided by the marketing department. Use the average of the three months in the current year with poorest production efficiency as 3. 4. 5. Base other fixed costs on current cost plus an inflation rate estimated for the coming year. benchmarks of success for the coming year Base equipment charges (primarily depreciation) on replacement values furnished by the pur- chasing department. Use the average of the ten newly hired employees' performance as a basis of labor efficiency for the coming year 6. REQUIRED For each item on Bailey's list, explain whether it will create budgetary slack. Use numerical examples as necessary to illustrate. Given the company's use of static budgets as one of the performance evaluation measures of its managers, can the managers justify the use of built-in budgetary slack? What would you recommend as a means for Bailey to improve the budgeting situation in the company? Provide some specific examples of how the budgeting process might be improved a. b. c