Referencing Styles : Harvard Question 1(a) Management accountants have a key role in the design andoperation of management control systems such as budgetarycontrol, standard costing and performance measurementsystems. Such systems are intended to encourage people in anorganisation to behave in ways which are consistent with theachievement of organisational objectives. It is thereforeimportant to know why/how individuals are motivated to actwhen designing and operating such accounting control systems.Some specific examples o … View More Question 1 (a) Management accountants have a key role in the design and operation of management control systems such as budgetary control, standard costing and performance measurement systems. Such systems are intended to encourage people in an organisation to behave in ways which are consistent with the achievement of organisational objectives. It is therefore important to know why/how individuals are motivated to act when designing and operating such accounting control systems. Some specific examples of the relationship between motivation theories and the design/operation of accounting control systems are set out below. (i) McGregors theories X and Y have implications for how budgets should be used by managers and even perhaps in some circumstances, whether they should be used at all. Theory X may imply that budgets should be used in a rigid, disciplinary way, whereby failure to achieve budgets is heavily penalised. Theory Y, on the other hand, may imply that budget variances should be interpreted in a more constructive way as a vehicle for mutual learning and continuous improvement. (ii) Expectancy theory has implications for the level at which budget targets should be set, that is, how demanding they should be, in order to induce maximum performance. According to this theory, effort applied is a function of the perceived probability that the target is achievable. The implications are that budget targets (and standard costs) and other performance measures should be challenging but achievable. (iii) Herzbergs hygiene factors and motivators have implications for the design of incentive schemes linked to achievement of budget targets, for example, in considering the importance of monetary rewards. (12 marks) (b) The main objectives of macroeconomic policy in modern capitalist economies are as follows. (i) A sustainable rate of economic growth, in order to improve continuously economic well-being. (ii) Low levels of unemployment, in order to prevent waste of productive resources and also the social unrest/disorder that prolonged high levels of unemployment can bring. (iii) A stable price level, that is, low inflation, in order to prevent the distortions to the price mechanism and also possible undesirable social consequences of high inflation. (5 marks) Answer guidance 33 (c) Externalities are the effects of production or consumption that impact on people who are not involved in the market exchange between producer and consumer, for example, pollution. Ignoring a negative externality will result in the private costs of production/consumption not being as high as the social costs. Consequently, the output of the product/service concerned will be higher than it should be, as too many resources will be allocated to the production of this particular product or service. A positive externality will have exactly the opposite effect, with under-production and too few resources being allocated to the particular product or service. (8 marks) (Question 5 total: 25 marks) 34 Assessment Booklet Question 2 (a) (i) A person culture puts individuals and their interests first and sees the organisation as a means to an end it is a resource on which individuals can draw to enhance their own talents, abilities or concerns. The person culture is represented by Handy as a constellation of loosely clustered stars. In this culture, commitment to the organisation for its own sake is likely to be limite