Question

Which of the following is a limitation of using past performance as a basis for judging actual results?*

A) It does not account for productivity increases over the periods.
B) It increases the incentive for managers to introduce budgetary slack.
C) It does consider inefficiencies of previous periods.
D) It increases the tendency of senior managers exaggerating changes in future conditions as opposed to changes in current conditions.

Answer 1

A limitation of using past performance as a basis for judging actual results is that it does not account for productivity increases over the periods.

Step-by-step explanation:

A limitation of using past performance as a basis for judging actual results is that it does not account for productivity increases over the periods. Past performance may not accurately reflect the current level of productivity, and failing to consider productivity improvements can lead to inaccurate assessments of actual results. For example, if a company has implemented new technologies or techniques that have significantly increased productivity, relying solely on past performance may not capture these improvements.

Identifying and incorporating productivity increases is important for accurately judging actual results and making informed decisions. By not accounting for productivity increases, the assessment based on past performance may underestimate the actual performance and the potential of the business.