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ACCA Applied Knowledge · Management Accounting · Behavioural aspects of budgeting

A budget is set at a level the manager believes is impossible to achieve. Which is the most likely behavioural consequence?

The most likely consequence is reduced motivation, because the manager sees the target as unattainable and so sees no point in trying. Motivation is highest when targets are challenging but achievable. Slack arises when managers influence budgets, which is not the case here.

  1. AIncreased motivation because the target stretches the manager
  2. BReduced motivation, as the manager sees no point in tryingCorrect
  3. CGreater goal congruence between the manager and the company
  4. DCreation of budgetary slack that makes the budget easy to achieve

Explanation

Targets perceived as impossible tend to demotivate because effort will not lead to success. Moderately challenging targets that are seen as achievable motivate best. Slack is created when managers can influence the budget, not when targets are imposed and unattainable.

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