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The achievability of budget targets in profit centers: a field study

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Readings in Accounting for Management Control

Abstract

This paper reports the findings of a field study aimed at providing a better understanding of how and why managers of corporations with multiple divisions set the levels of achievability of annual profit center budget targets. The data, gathered from 54 profit centers in 12 corporations, show that most budget targets are set to be achievable an average of eight or nine years out to ten. This finding contrasts with the prescription made in most management accounting textbooks suggesting that for optimum motivation budget targets should be achievable less than 50 percent of the time. Managers maintain, however, that these highly achievable targets provide considerable challenge, and the high achievability actually provides many advantages, including improved corporate reporting, resource planning, control, and, combined with other control system elements, even motivation.

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Author information

Authors and Affiliations

  1. Graduate School of Business Administration, Harvard University, USA

    Kenneth A. Merchant (Associate Professor)

  2. Graduate School of Business Administration, Harvard University, USA

    Jean-François Manzoni (Doctoral Candidate)

Authors
  1. Kenneth A. Merchant
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  2. Jean-François Manzoni
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Editor information

Editors and Affiliations

  1. University of Glasgow, UK

    Clive Emmanuel

  2. University of Lancaster, UK

    David Otley

  3. University of Southern California, USA

    Kenneth Merchant

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© 1989 Springer Science+Business Media Dordrecht

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Merchant, K.A., Manzoni, JF. (1989). The achievability of budget targets in profit centers: a field study. In: Emmanuel, C., Otley, D., Merchant, K. (eds) Readings in Accounting for Management Control. Springer, Boston, MA. https://doi.org/10.1007/978-1-4899-7138-8_23

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  • DOI: https://doi.org/10.1007/978-1-4899-7138-8_23

  • Publisher Name: Springer, Boston, MA

  • Print ISBN: 978-0-412-41490-9

  • Online ISBN: 978-1-4899-7138-8

  • eBook Packages: Springer Book Archive

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