This paper models a situation in which a lower-level manager who executes the budget possesses superior information about the productivity of production inputs compared to the upper-level supervisor and can appropriate budgetary slack for personal benefit. Line-item budgeting, which prohibits transfers between budget items, and aggregate budgeting, which permits such transfers, are compared from the perspective of cost control. Three assumptions are employed. First, it is optimal to allocate generous budgets for unfavorable environments that require larger budgets. Second, the upper-level supervisor cannot adjust the budget executor's compensation downward to account for the possibility that the budget executor may privately appropriate budgetary slack. Third, the budget executor prefers receiving the same amount in cash rather than privately appropriating it from the budget. Under these conditions, the first result is that if the budget executor is not rewarded for budget savings, prohibiting budget transfers has no cost control effect. In this case, the cost-minimizing optimal input mix is selected under aggregate budgeting, but the resulting benefits do not accrue to the organization. The second result is that if the cost control effect of prohibiting budget transfers exceeds the productivity loss effect due to an inefficient input mix, it is desirable to implement line-item budgeting that rewards budget savings while prohibiting budget transfers. Finally, it is shown that if the budget executor's compensation is determined based not only on the amount of budget savings but also on his budget allocation decisions, the cost control effect of aggregate budgeting that permits budget transfers is greater. In summary, when considering the possibility of unethical behavior by the budget executor, the effect of prohibiting budget transfers depends not only on the form of the production function, as discussed in existing research, but also on the possibility of the budget executor's private misuse of the budget and the existence of incentive systems to induce budget savings.