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ACCA Applied Knowledge · Management Accounting · Budgetary control and reporting

Which of the following is most likely to improve motivation when budgets are used to evaluate managers?

Participation by managers in setting challenging but achievable targets is most likely to motivate. Managers who help set targets are more likely to accept them. Imposed, impossible or very easy targets cause resentment, demotivation or complacency respectively.

  1. ASetting targets at a level the manager considers challenging but achievable, with the manager participating in setting themCorrect
  2. BImposing the budget from senior management so that targets are consistent across departments
  3. CSetting very tight targets that are almost impossible to achieve, to stretch performance
  4. DSetting budgets that are easy to meet so that managers always receive a bonus

Explanation

Research on budget motivation shows that targets accepted by the manager, challenging but attainable, give the best performance. Imposed or impossible targets cause demotivation, while slack targets give no incentive to improve.

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