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ACCA Applied Knowledge · Management Accounting · Behavioural aspects of budgeting

A cost centre manager at Brindle Co has a controllable budget of $200,000 and actual controllable costs of $212,000. Allocated head office costs of $50,000 were budgeted, but $58,000 was actually charged. The manager believes performance reports should be fair and motivating. Which course of action best supports this aim under controllability principles?

Report the $12,000 adverse variance on controllable costs and show the $8,000 head office variance separately. Managers should be held accountable only for costs they can influence, and including allocated head office charges in their performance would be unfair and demotivating.

  1. AReport the total adverse variance of $20,000 to the manager
  2. BReport only the $12,000 adverse variance on controllable costs and separate the head office chargeCorrect
  3. CReport only the $8,000 adverse variance on head office costs
  4. DExclude all variances and report only actual costs

Explanation

Controllable variance is 212,000 − 200,000 = 12,000 adverse. Head office variance is 58,000 − 50,000 = 8,000 adverse, which the manager cannot influence. Total of 20,000 would hold the manager accountable for uncontrollable items, which is demotivating, so the two are separated.

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