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ACCA Strategic Professional · Advanced Performance Management · Budgetary planning and control

A divisional manager receives a monthly report showing a large adverse materials price variance caused by a supplier price rise imposed by head office's new central purchasing contract. Which principle of responsibility accounting does this best illustrate?

Managers should be held responsible only for costs and variances they can control. Because the price rise resulted from head office's central contract, the variance is uncontrollable at divisional level and should be reported separately, avoiding unfair performance assessment and demotivation.

  1. AVariances should be investigated only when controllable by the manager, so this should be reported as uncontrollableCorrect
  2. BThe manager should be fully accountable because the cost sits in their division
  3. CAdverse variances should be removed from reports entirely
  4. DPrice variances are always the production manager's responsibility

Explanation

Responsibility accounting holds managers accountable for items they can influence. The price rise stems from a head-office contract, so it is outside the manager's control and should be identified separately. Holding the manager fully accountable would be demotivating.

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