ACCA Strategic Professional · Strategic Business Leader · Cost and management accounting
At Ostrava Retail, the finance director imposes sales and cost targets on store managers without consultation, reasoning that head office has the best market information. Store managers report that targets are unrealistic and several have started to understate expected sales when asked for forecasts. Which conclusion best reflects the problem and its implication?
The problem is an imposed top-down budget. Because store managers were not consulted, they see targets as unrealistic, so commitment and motivation fall and they start understating forecasts. This is a form of budgetary slack or gaming, which reduces the quality of planning information.
- AA top-down imposed budget reduces commitment and motivation, and may encourage budgetary slack or gaming in information providedCorrect
- BA participative budget has created excessive slack because managers set their own targets
- CThe budget is functioning as a planning tool only and has no motivational effect
- DThe budget is a flexible budget and so variances will be uncontrollable
Explanation
Imposed targets without consultation are a top-down approach. This typically lowers acceptance of and commitment to the budget, and managers may respond by distorting information or building in slack. The scenario describes no participation, so option two is wrong.
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