正确答案：(c) Examiner’s Note:The topic of managerial motivation and budgeting has been a subject of discussion for a number of years. There are linkshere to the topics of performance measurement and responsibility accounting. Discussion should be focused on the area ofbudgets and the budgeting process, as specified in the question.Setting targets for financial performanceIt has been reasonably established that managers respond better in motivation and performance terms to a clearly defined,quantitative target than to the absence of such targets. However, budget targets must be accepted by the responsiblemanagers if they are to have any motivational effect. Acceptance of budget targets will depend on several factors, includingthe personality of an individual manager and the quality of communication in the budgeting process.The level of difficulty of the budget target will also influence the level of motivation and performance. Budget targets that areseen as average or above average will increase motivation and performance up to the point where such targets are seen asimpossible to achieve. Beyond this point, personal desire to achieve a particular level of performance falls off sharply. Carefulthought must therefore go into establishing budget targets, since the best results in motivation and performance terms willarise from the most difficult goals that individual managers are prepared to accept4.While budget targets that are seen as too difficult will fail to motivate managers to improve their performance, the same istrue of budget targets that are seen as being too easy. When budget targets are easy, managers are likely to outperform. thebudget but will fail to reach the level of performance that might be expected in the absence of a budget.One consequence of the need for demanding or difficult budget targets is the frequent reporting of adverse variances. It isimportant that these are not used to lay blame in the budgetary control process, since they have a motivational (or planning)origin rather than an operational origin. Managerial reward systems may need to reward almost achieving, rather thanachieving, budget targets if managers are to be encouraged by receiving financial incentives.Participation in the budget-setting processA ‘top-down’ approach to budget setting leads to budgets that are imposed on managers. Where managers within anorganisation are believed to behave in a way that is consistent with McGregor’s Theory X perspective, imposed budgets mayimprove performance, since accepting the budget is consistent with reduced responsibility and avoiding work.It is also possible that acceptance of imposed budgets by managers who are responsible for their implementation andachievement is diminished because they feel they have not been able to influence budget targets. Such a view is consistentwith McGregor’s Theory Y perspective, which holds that managers naturally seek responsibility and do not need to be tightlycontrolled. According to this view, managers respond well to participation in the budget-setting process, since being able toinfluence the budget targets for which they will be responsible encourages their acceptance. A participative approach tobudget-setting is also referred to as a ‘bottom-up’ approach.In practice, many organisations adopt a budget-setting process that contains elements of both approaches, with seniormanagement providing strategic leadership of the budget-setting process and other management tiers providing input in termsof identifying what is practical and offering detailed knowledge of their area of the organisation.