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ACCA Applied Knowledge · Management Accounting · Behavioural aspects of budgeting

Dunmore Co is considering the target level for next year's budget. Research suggests performance is highest when targets are set at a level that is challenging but achievable. Which of the following statements about target difficulty is correct?

Attainable standards needing reasonable effort tend to motivate better than ideal standards. Ideal standards assume perfect efficiency and normally produce persistent adverse variances, which demotivate staff. Very easy targets encourage complacency and slack, so the best level is challenging but achievable.

  1. AIdeal standards that assume perfect efficiency generally maximise motivation because they stretch staff most
  2. BVery easy targets maximise performance because staff always achieve them
  3. CAttainable standards that need reasonable effort tend to motivate better than ideal standardsCorrect
  4. DTarget difficulty has no effect on motivation if rewards are paid

Explanation

Attainable standards, which allow for normal losses and need reasonable effort, are seen as achievable and so tend to motivate. Ideal standards usually produce constant adverse variances and demotivate. Very easy targets encourage slack and complacency, and difficulty does affect motivation even when rewards exist.

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