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ACCA Applied Skills · Performance Management · Divisional performance and transfer pricing

Which of the following is the main behavioural benefit of assessing divisional managers only on controllable costs and profit?

Assessing managers only on controllable items is likely to be seen as fair and so supports motivation. It does not guarantee goal congruence, and it does not replace separate assessment of the division's overall profitability, which includes non-controllable traceable costs.

  1. AIt ensures all head office costs are recovered by divisions
  2. BIt is likely to be seen as fair and keeps managers motivatedCorrect
  3. CIt removes the need for any assessment of the division's own performance
  4. DIt guarantees goal congruence with group objectives

Explanation

Holding managers accountable only for what they can influence is perceived as fair and supports motivation. It does not guarantee goal congruence, and the division itself should still be assessed using a wider measure including traceable non-controllable costs.

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