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ACCA Applied Knowledge · Management Accounting · Nature and purpose of budgeting

Bexley Co has a budget committee that sets a tight sales target of 50,000 units for the year. Management states that the budget will be used to motivate managers, who have not been consulted. Which statement is most likely to be correct?

Managers may reject an imposed, unconsulted target as unrealistic, which can reduce motivation instead of improving it. Budgets motivate best when managers accept them as achievable, and participation helps build that acceptance. Imposition does not automatically deliver goal congruence or better performance.

  1. AManagers may reject the target as unrealistic, so motivation could be reduced rather than improvedCorrect
  2. BParticipation is unnecessary because motivation depends only on the size of the target
  3. CThe budget will achieve goal congruence automatically because it comes from senior management
  4. DImposed budgets always produce higher performance than participative budgets

Explanation

Imposed budgets with no consultation can be seen as unachievable or unfair, which can demotivate managers and reduce commitment. Participation generally increases acceptance and ownership. Goal congruence is not automatic, and imposed budgets do not always outperform participative ones.

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