ACCA Applied Knowledge · Management Accounting · Budgetary control and reporting
Which feature of a budget report is most consistent with the controllability principle?
The controllability principle says managers should be judged on items they can influence. A budget report that shows controllable items separately from uncontrollable ones supports this, making variances fairer and more motivating.
- AAllocating all head office costs to each manager's report as they are incurred
- BShowing managers only the costs and revenues they can influence, or separating uncontrollable itemsCorrect
- CReporting only favourable variances to maintain morale
- DUsing the same budget for every department regardless of activity
Explanation
Controllability means managers should be held accountable only for items they can influence. Separating or excluding uncontrollable costs achieves this. Allocating head office costs does the opposite, and hiding adverse variances undermines control.
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