ACCA Performance Management (F5) Certification Practice Exam

What does feedback control measure in budgeting?

1. Forecasting future budget needs

2. Differences between planned and actual outputs

3. Adjustments in initial budget allocations

4. Variability in economic conditions

The correct answer is: Differences between planned and actual outputs

Feedback control in budgeting specifically focuses on assessing the differences between what was planned in the budget and the actual outcomes achieved. This approach allows managers to monitor performance after the event and determine where variances occur. By analyzing these variances, organizations can identify areas where they may need to improve efficiency, adjust operations, or revise budgetary assumptions for future periods. This tool is essential for performance management as it provides insights into the effectiveness of both the budgeting process and the operational execution. For instance, if a department’s actual expenses significantly exceed the budgeted amounts, it triggers investigation into the reasons behind this discrepancy, facilitating corrective actions or strategy adjustments. In contrast, other options focus on aspects that do not align with the primary purpose of feedback control in budgeting. For instance, forecasting future budget needs involves predicting future financial requirements rather than measuring past performance; adjustments in initial budget allocations relate to the planning phase rather than post-implementation evaluation; and variability in economic conditions may impact budget assumptions but does not measure performance against the budget itself. Thus, feedback control is fundamentally about evaluating the actual versus planned outputs to improve processes and decision-making continuously.