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ACCA Applied Knowledge · Management Accounting · Behavioural aspects of budgeting

Hale Co has a sales manager whose bonus is paid only if actual sales revenue exceeds budget by at least 10%. The budget was imposed and is widely seen as very difficult. Which is the most likely behavioural consequence?

The most likely consequence is demotivation. An imposed budget requiring sales to beat budget by 10% and seen as very difficult is perceived as unattainable, so the manager expects no bonus and may reduce effort. Rewards motivate only when the target is seen as achievable.

  1. AIncreased motivation because the reward is large
  2. BDemotivation because the target is perceived as unattainableCorrect
  3. CGoal congruence because the manager's goals match the company's
  4. DImproved communication between managers and senior staff

Explanation

A target seen as unachievable and imposed from above usually reduces motivation, as the manager expects not to earn the bonus and may give up effort. Large rewards only motivate when the target is perceived as attainable. Nothing in the data suggests better communication or goal congruence.

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