Practice test 1 on the AAT Website 1.2 C

Hi All,

I have been working on this practice test and feel the answer the AAT have given is very vague and doesn't cover the whole criteria.

This is the answer they have put

(c) Give your opinion, with reasons, on how well the budget would motivate managers to create sustainable, profitable growth.

Budgetary control can be a powerful tool to encourage managers and staff to create sustainable, profitable growth. To do this, budgets need to be stretching but achievable.

The proposed Merville Ltd budget has been prepared by its own directors who have a vested interest, in the form of the management bonus, in ensuring that it is easy to achieve. They have not provided sufficient supporting data to enable us to verify that the sales volume and pricing assumptions are stretching.

Increasing all costs, fixed and variable, by 12.5% cannot be justified and creates significant budgetary slack.

I do not believe that this draft budget would motivate Merville Ltd to create sustainable, profitable growth


They haven't mentioned about the fact directors would be the only people qualifying for the £21,000 bonus and not the managers???

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This was my answer

I don't believe this particular budget would motivate managers greatly as it was created by the directors of the company and it wasn't created by the departmental managers meaning it isn't a bottom up budget, sot the departmental managers don't have control over their own costs and spending.
Also the fact that the operating profit as a percentage compared to sales is lower then last year could go either 1 or 2 ways it could motivate managers to try to sell more products and to keep costs down to try and achieve a higher profit or it could just mean that the managers would look at that figure and be demotivated as it is quite considerably lower and despite selling a lot more products this year the expenses outweigh this.
There is also a £21,000 profit related management bonus that is being offered to the directors of the company this could demotivate managers and staff members as they will be working hard but won't qualify for the bonus as it's only available to directors.

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I can't work out if the AAT are being very vague with their answer of I'm on the wrong track?
I'm currently studying AAT Level 4! as part of my Finance Apprenticeship

Comments

  • AlisonSwansonAlisonSwanson Registered, Tutor Posts: 89
    Let's hope there is scope in the AAT mark scheme for assessors to use their professional judgement and that assessments are being marked by tutors experienced in their subject. AAT??