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ACCA Applied Knowledge · Management Accounting · Behavioural aspects of budgeting

A company wants its budget targets to motivate managers. Which approach is most likely to achieve this according to accepted behavioural theory?

Targets should be challenging but considered attainable by managers. Overly tough targets are viewed as impossible and demotivate, while very easy ones encourage complacency and slack. Targets seen as achievable are accepted by managers and give the best motivation and performance.

  1. ASet targets at the level of ideal standards so managers always strive for perfection
  2. BSet targets that are challenging but considered attainable by the managersCorrect
  3. CSet targets well below expected performance so every manager earns a reward
  4. DKeep targets confidential and unchanged for the whole year

Explanation

Targets that are challenging yet achievable are accepted and motivate. Very tough targets are seen as impossible and demotivate, while very easy targets give no stimulus and encourage complacency. Confidentiality and rigidity do not aid motivation.

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