Skip to content

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

Tarn Engineering evaluates plant managers using a budget-constrained style, so a manager is judged solely on meeting the budgeted cost every month. A plant manager defers essential maintenance in the final month to avoid an adverse variance, causing a breakdown the next quarter. Which analysis is most accurate?

The rigid budget-constrained evaluation has encouraged short-termism: deferring maintenance to meet the budget harms long-term performance. The remedy is a more flexible evaluation style that considers controllable costs and longer-term effects. It is not goal congruence, and the cause is not flexing of the budget.

  1. AThe rigid, short-term use of the budget has encouraged dysfunctional behaviour that harms long-term goals, so a more flexible evaluation style with controllable-cost focus should be consideredCorrect
  2. BThe behaviour shows the budget lacked participation, so only participation can resolve it, regardless of how performance is evaluated
  3. CThe behaviour is a sign of goal congruence, since the manager met the budget
  4. DThe problem arises because the budget was flexed, and a fixed budget would remove it

Explanation

Hopwood's budget-constrained style stresses meeting the budget in the short term and can induce manipulation and short-termism, such as deferring maintenance. A profit-conscious or non-accounting style, with attention to controllable items and long-term effects, reduces this. Meeting the budget while damaging future performance is not goal congruence, and flexing is not the cause.

Did you get it right without looking?

One question tells you little. A timed set on Budgetary planning and control shows your real accuracy, how long you take and where you lose marks.

Practise Budgetary planning and controlFree diagnostic mock

More Budgetary planning and control questions