Management Accounting · Behavioural aspects of budgeting

Setting Targets: Difficulty and Controllability in Budgeting

Updated 11 October 2026 · Fact-checked

Targets motivate best when they are challenging but achievable and when managers control the results they are judged on. Ideal standards are usually too tough and demotivate. Easy targets cause slack. Attainable standards work best. Only controllable items should be used to judge a manager's performance.

Understand Setting Targets: Difficulty and Controllability

A budget or standard is a target. People respond to targets, and the response depends on two things: how hard the target is, and whether the person can influence the result.

Start with difficulty. There are three common levels:

Ideal standards assume perfect conditions: no waste, no idle time, no breakdowns. They are almost impossible to hit.
Attainable standards assume efficient but realistic working, with allowance for normal waste and delays. They are tough but achievable.
Easy (or low) standards can be met with little effort, for example by using past results with generous allowances.

Ideal standards often demotivate. Managers see that adverse variances are certain, so they stop trying. Easy standards also fail. Managers reach them without effort, so performance stays flat and they may build in budgetary slack. Attainable standards usually give the best motivation, because managers believe they can reach them with effort. This is a general principle, not a law. Some people respond well to stretching targets, and ideal standards can still be useful for spotting the full cost of inefficiency.

Now controllability. A controllable cost is one a manager can influence by their own decisions within the period. An uncontrollable cost is one they cannot, such as a head office cost allocated to them. In responsibility accounting, managers should be held accountable only for what they control. Judging them on uncontrollable items feels unfair and reduces motivation. It can also make them blame others.

Controllability depends on the manager and the time frame. A cost uncontrollable by a production manager, such as raw material price set by purchasing, may be controllable by the purchasing manager. In the long run, most costs become controllable by someone. Good reports separate controllable from uncontrollable items so each manager is judged fairly.

Key formulas to remember

Ideal standard: Assumes perfect conditions, no allowance for waste, idle time or breakdowns; Usually unattainable. Adverse variances are expected, which can demotivate. Useful as a long-term aim.
Attainable standard: Efficient working with allowance for normal losses, waste and downtime; Challenging but achievable. Generally best for motivation.
Easy (low) standard: Can be reached with little effort, often based on past performance; Little motivation to improve. Encourages slack.
Controllable cost: A cost a manager can influence by their own decisions in the period; Judge managers on these. Controllability depends on the manager and time frame.
Controllable profit (responsibility reporting): Controllable profit = Revenue − Controllable costs; Uncontrollable items such as allocated head office costs are excluded or shown separately.

How to solve Setting Targets: Difficulty and Controllability questions

Use this method for any question on target difficulty or controllability.

1Identify the target type described: ideal, attainable or easy. Look for clues such as 'no waste allowed' or 'based on last year plus allowance'.
2Decide how a typical manager would see the target: impossible, challenging but fair, or too easy.
3Link that view to motivation and behaviour: demotivation, effort, or slack.
4Check who controls each item in the report. Ask: can this manager influence it in this period?
5Separate controllable from uncontrollable items and say which should be used to judge performance.
6State the recommendation, such as setting attainable standards or reporting controllable items separately.
7For number questions, calculate carefully, for example controllable profit, and then add a short comment.

Quickest way: Three-question check

When to use it: Use for multiple choice and multiple response questions, where you have about 3 minutes per 2-mark question.

Question 1: How hard is the target? Perfect conditions means ideal. Realistic with allowances means attainable. Little effort means easy.
Question 2: What is the likely behaviour? Ideal leads to demotivation. Easy leads to slack. Attainable leads to motivation.
Question 3: Can the manager influence the item? If not, it should not be used to judge them.
Eliminate options that say a rule is always true, such as 'ideal standards always demotivate'.

Common mistakes in Setting Targets: Difficulty and Controllability

Saying ideal standards are best because they push managers hardest.
Students assume tougher always means more effort.
Fix: Remember that targets seen as impossible reduce effort. Attainable standards are usually best for motivation.
Saying attainable standards allow no waste.
Students mix up ideal and attainable.
Fix: Ideal means no waste or downtime. Attainable allows normal waste and delays.
Judging a manager on costs allocated from head office.
Students see the cost in the report and assume it counts.
Fix: Ask who controls it. Allocated costs the manager cannot influence should be excluded or shown separately.
Treating a cost as controllable or uncontrollable for everyone.
Students memorise cost types instead of thinking about the manager.
Fix: Controllability depends on the manager and the time frame. Name whose control you are discussing.
Forgetting that easy targets cause problems.
Students think easy targets are kind and so good for morale.
Fix: Easy targets give little challenge, flat performance and room for budgetary slack.
Claiming ideal standards are always useless.
Students overstate the rule.
Fix: Say they usually demotivate, but they can show the full cost of inefficiency and support continuous improvement aims.

Worked examples

Example 1

A production manager's budget for a month uses a labour standard of 2 hours per unit, which assumes no idle time or errors. Normal conditions mean 2.5 hours per unit are needed. The manager completes 1,000 units using 2,500 hours. Identify the type of standard, calculate the efficiency variance in hours, and comment on the likely effect on motivation.

Show the solution

The 2-hour standard assumes perfect conditions, so it is an ideal standard.
Standard hours for actual output = 1,000 × 2 = 2,000 hours.
Actual hours = 2,500 hours.
Variance = 2,000 − 2,500 = 500 hours adverse.
The manager worked at normal efficiency (2.5 hours per unit), yet the report shows an adverse variance.
Adverse variances will occur every month, so the manager may see the target as unfair and stop trying.

Answer: Ideal standard. Efficiency variance is 500 hours adverse. It arises even with normal efficiency, so it is likely to demotivate. An attainable standard of 2.5 hours would show no variance.

Example 2

Division X reports the following for the year: revenue ₹60,00,000; controllable costs ₹38,00,000; allocated head office costs ₹7,00,000. Calculate controllable profit and profit after allocated costs. State which figure should be used to assess the divisional manager and why.

Show the solution

Controllable profit = Revenue − Controllable costs.
= ₹60,00,000 − ₹38,00,000 = ₹22,00,000.
Profit after allocated costs = ₹22,00,000 − ₹7,00,000 = ₹15,00,000.
The manager cannot influence head office costs, so these are uncontrollable by them.
Judging the manager on ₹15,00,000 would include items outside their control.

Answer: Controllable profit is ₹22,00,000 and profit after allocation is ₹15,00,000. Use ₹22,00,000 to assess the manager, because it excludes costs they cannot control. Using the lower figure would be unfair and may demotivate.

Exam tips

In objective tests, watch for absolute words like 'always' or 'never'. Behavioural rules are tendencies, so options with absolutes are often wrong.
Learn the one-line definition of each standard type. Many questions are just matching a description to ideal, attainable or easy.
In multiple response questions, select exactly the stated number. Check each option against both difficulty and controllability.
For Section B scenarios, quote the clue from the text, then link it to motivation. This earns marks for application, not just recall.
If a report mixes controllable and uncontrollable costs, recommend splitting them. This is the standard answer.

Practice questions from Behavioural aspects of budgeting

Setting Targets: Difficulty and Controllability: frequently asked questions

What is the difference between ideal and attainable standards?

An ideal standard assumes perfect conditions with no waste, idle time or breakdowns. An attainable standard allows for normal losses and delays, so it is tough but achievable. Attainable standards are usually better for motivation.

Why can easy targets be a problem?

If a target needs little effort, managers have no reason to improve. They may also add budgetary slack, which means building extra cost into the budget. Performance then stays at a low level.

What is a controllable cost?

It is a cost a manager can influence through their own decisions in the period. Whether a cost is controllable depends on the manager and the time frame. Over a long period, most costs can be controlled by someone.

Should managers be judged on uncontrollable costs?

Generally no. Judging managers on items they cannot influence feels unfair and reduces motivation. Reports should separate controllable items, or at least show them clearly.