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ACCA Applied Knowledge · Management Accounting · Behavioural aspects of budgeting

A company's directors ask departmental managers for budget proposals, but then replace them with targets already decided by the board, without telling the managers. Which statement best describes the likely effect?

Pseudo-participation is likely. Managers are asked for input, but the board overrides it with predetermined targets. Once managers notice, motivation and trust fall, so the commitment benefit of participation is lost. The final budget is effectively imposed, not bottom-up.

  1. AManagers will be highly motivated, as they were consulted
  2. BPseudo-participation may occur, which can reduce motivation and trustCorrect
  3. CBudgetary slack will be eliminated
  4. DThe budget will become a fully bottom-up budget

Explanation

Consultation that has no real influence on the outcome is pseudo-participation. Managers who realise their input was ignored tend to become demotivated and distrustful, so the budget loses its commitment benefit. The final budget is imposed, not bottom-up, and slack is not eliminated by this.

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