Free Questions › ACCA › Advanced Performance Management
Free ACCA Advanced Performance Management Practice Questions & Answers
388 exam-style Advanced Performance Management questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 1
What is the primary purpose of strategic planning in an organisation?
Select an option first.
Correct answer: B — To define long-term direction, allocate resources, and align activities with the organisation's mission and objectives
Explanation: Strategic planning establishes the long-term direction and resource allocation to achieve the organisation's overall goals. A is operational scheduling; C is compliance; D is treasury management — all short-term operational tasks.
Question 2
What does a 'mission statement' describe?
Select an option first.
Correct answer: B — The fundamental purpose of the organisation — why it exists and what it aims to achieve
Explanation: A mission statement articulates the organisation's core purpose, values, and reason for existence. Financial targets (A) are objectives; employee tasks (C) are operational; debt schedules (D) are financial management.
Question 3
Which of the following BEST describes a 'strategic objective'?
Select an option first.
Correct answer: B — A specific, measurable goal derived from the mission statement that guides long-term direction
Explanation: Strategic objectives are medium to long-term, measurable targets that translate the mission into actionable goals. A and D are operational; C is financial, not strategic.
Question 4
What is a 'Critical Success Factor' (CSF)?
Select an option first.
Correct answer: B — An area or activity in which the organisation must excel to achieve its strategic objectives
Explanation: CSFs are the limited number of areas where satisfactory results are essential for the organisation to achieve its strategic goals. A, C and D are financial measures unrelated to the concept of CSFs.
Question 5
What is a 'Key Performance Indicator' (KPI)?
Select an option first.
Correct answer: B — A measurable value that demonstrates how effectively an organisation is achieving its key business objectives and CSFs
Explanation: KPIs quantify performance against CSFs and strategic objectives, enabling management to monitor progress. A, C and D are unrelated to performance measurement.
Get the full ACCA question bank — free
Drop your email and we'll send you fresh ACCA practice questions, fully worked solutions and exam-deadline reminders. No spam — unsubscribe in one click.
Want to save your score and take a full mock exam? Create a free account →
Question 6
What is the relationship between CSFs and KPIs?
Select an option first.
Correct answer: B — CSFs identify WHAT must be done well for strategic success; KPIs measure HOW WELL those critical areas are being performed
Explanation: CSFs define the critical areas of performance; KPIs are the metrics used to measure performance in those areas. The relationship is: strategy → CSFs → KPIs → performance data. A, C and D misstate the relationship.
Question 7
The Balanced Scorecard (BSC) was developed by:
Select an option first.
Correct answer: B — Kaplan and Norton
Explanation: The Balanced Scorecard was introduced by Robert Kaplan and David Norton in 1992 as a strategic performance measurement framework. A, C and D are other strategy academics but not the BSC developers.
Question 8
In the Balanced Scorecard, the 'Learning and Growth' perspective focuses on:
Select an option first.
Correct answer: B — Building the organisation's capabilities through people, systems, and organisational culture to support long-term strategy execution
Explanation: Learning & Growth underpins all other BSC perspectives — without developing people, systems, and culture, the processes, customer, and financial goals cannot be achieved. A is financial; C and D are operational.
Question 9
What does 'Return on Capital Employed' (ROCE) measure?
Select an option first.
Correct answer: B — The efficiency with which a company uses its total capital (equity + debt) to generate operating profit
Explanation: ROCE = EBIT ÷ Capital Employed (Total assets − Current liabilities or Equity + Long-term debt). It measures overall capital efficiency. A is ROE; C is inventory turnover; D is dividend yield.
Question 10
What is the formula for Return on Investment (ROI) in a divisional context?
Select an option first.
Correct answer: B — Controllable Profit ÷ Net Assets (or Capital Employed) × 100%
Explanation: Divisional ROI = Controllable Profit ÷ Controllable Net Assets × 100%. This measures how efficiently a division uses its assets. A is asset turnover; C is not a standard ratio; D is gross margin.
Question 11
What is 'Residual Income' (RI) in divisional performance measurement?
Select an option first.
Correct answer: B — Divisional profit minus an imputed interest charge on the capital employed by the division
Explanation: RI = Divisional profit − (Capital employed × Cost of capital). Unlike ROI, RI encourages managers to accept all projects earning above the cost of capital (no sub-optimisation problem). A, C and D are incorrect.
Question 12
What is the main advantage of Residual Income (RI) over Return on Investment (ROI)?
Select an option first.
Correct answer: B — RI avoids the dysfunctional behaviour where a divisional manager rejects positive-NPV projects because they would lower the division's ROI percentage
Explanation: ROI creates a dysfunctional incentive: a manager with a high existing ROI may reject new projects with returns above WACC (but below current ROI) to protect their ratio. RI uses an absolute measure and avoids this. A, C and D are incorrect or not the main advantage.
Question 13
What does 'Economic Value Added' (EVA) measure?
Select an option first.
Correct answer: B — The surplus economic profit generated above the cost of all capital employed — calculated as after-tax operating profit minus a capital charge
Explanation: EVA = NOPAT − (WACC × Capital Employed). It measures whether the company is genuinely creating value above its cost of capital. A positive EVA means value creation. A, C and D are incorrect.
Question 14
The formula for EVA is:
Select an option first.
Correct answer: B — NOPAT − (WACC × Capital employed)
Explanation: EVA = Net Operating Profit After Tax (NOPAT) − (Weighted Average Cost of Capital × Capital Employed). Both figures require adjustments from accounting data to economic measures. A, C and D are wrong.
Question 15
Which of the following is a 'value driver' in Rappaport's shareholder value model?
Select an option first.
Correct answer: B — Revenue growth rate and operating profit margin — both directly affect the free cash flows discounted to determine shareholder value
Explanation: Rappaport's seven value drivers include: revenue growth rate, operating profit margin, tax rate, working capital investment, fixed capital investment, cost of capital, and competitive advantage period. A, C and D are not value drivers in this model.
Question 16
A company's mission is 'to be the world's most trusted provider of sustainable energy solutions'. This is an example of:
Select an option first.
Correct answer: C — A mission statement articulating the organisation's purpose and direction
Explanation: The statement articulates why the organisation exists and what it strives to achieve — the hallmark of a mission statement. A, B and D are more specific and operational.
Question 17
Which of the following BEST describes the difference between a 'goal' and an 'objective' in strategic management?
Select an option first.
Correct answer: B — Goals are broad, aspirational statements of intent; objectives are specific, measurable, time-bound targets derived from goals
Explanation: Goals: broad aspirational direction (e.g., 'become market leader'). Objectives: specific, measurable (e.g., 'achieve 25% market share by 2027'). A, C and D misstate the distinction.
Question 18
What is a 'SMART' objective?
Select an option first.
Correct answer: B — An objective that is Specific, Measurable, Achievable, Relevant, and Time-bound
Explanation: SMART objectives have five qualities: Specific (clear), Measurable (quantifiable), Achievable (realistic), Relevant (aligned with strategy), and Time-bound (deadline set). A, C and D are not definitions of SMART.
Question 19
Which of the following tools is used for macro-environmental analysis in strategic planning?
Select an option first.
Correct answer: B — PESTEL analysis — examining Political, Economic, Social, Technological, Environmental, and Legal factors
Explanation: PESTEL analyses the external macro-environment that the organisation cannot control. SWOT (A) is broader (internal + external). Porter's Five Forces (C) analyses industry structure. Ansoff (D) is a growth strategy tool.
Question 20
What does Porter's Five Forces model analyse?
Select an option first.
Correct answer: B — The competitive forces within an industry that determine its attractiveness and profitability
Explanation: Porter's Five Forces: threat of new entrants, bargaining power of buyers, bargaining power of suppliers, threat of substitutes, and rivalry among existing competitors. Together they determine industry profitability. A is SWOT; C and D are unrelated.
Question 21
What is a 'SWOT analysis'?
Select an option first.
Correct answer: B — A strategic framework assessing internal Strengths and Weaknesses alongside external Opportunities and Threats
Explanation: SWOT analysis combines internal assessment (Strengths, Weaknesses) with external factors (Opportunities, Threats) to inform strategic choices. A, C and D are unrelated.
Question 22
In the Balanced Scorecard 'Customer' perspective, which of the following would be a typical measure?
Select an option first.
Correct answer: B — Customer satisfaction index and net promoter score
Explanation: The Customer perspective focuses on how the organisation is perceived by customers — satisfaction, retention, acquisition, and market share. A is financial; C is internal processes; D is learning and growth.
Question 23
Which Balanced Scorecard perspective asks 'How do we look to our shareholders'?
Select an option first.
Correct answer: C — Financial
Explanation: The Financial perspective measures how the organisation looks to shareholders through metrics like ROCE, EVA, revenue growth, and profit margins. A, B and D serve different stakeholders/purposes.
Question 24
What is the primary purpose of a 'performance management system'?
Select an option first.
Correct answer: B — To provide a framework for setting objectives, measuring performance against them, providing feedback, and taking corrective action
Explanation: A performance management system encompasses goal-setting, measurement, feedback, and control — linking individual and departmental performance to organisational strategy. A, C and D are administrative functions.
Question 25
What does the term 'strategy map' refer to in the context of the Balanced Scorecard?
Select an option first.
Correct answer: B — A visual diagram showing the cause-and-effect relationships between objectives across the four BSC perspectives — how learning and growth drives processes, which drives customer satisfaction, which drives financial results
Explanation: A strategy map (Kaplan & Norton) shows the logical chain from Learning & Growth → Internal Processes → Customer → Financial, illustrating how non-financial drivers lead to financial outcomes. A, C and D are unrelated.
Question 26
What is 'benchmarking'?
Select an option first.
Correct answer: B — Comparing an organisation's processes, metrics, and performance against best-in-class competitors or industry standards to identify gaps and improvement opportunities
Explanation: Benchmarking compares performance against external reference points (best practice) to drive improvement. A is partially correct but too narrow; C and D are wrong.
Question 27
Which of the following types of benchmarking compares processes against organisations in completely different industries?
Select an option first.
Correct answer: C — Functional benchmarking
Explanation: Functional benchmarking compares similar functions (e.g., logistics, HR) across different industries to gain insights from best practice regardless of sector. Internal (A) = within the same organisation. Competitive (B) = same industry rivals. Process (D) is sometimes used as a synonym for functional.
Question 28
What is 'transfer pricing' in the context of divisional performance?
Select an option first.
Correct answer: B — The internal price at which one division of an organisation sells goods or services to another division within the same organisation
Explanation: Transfer pricing determines the internal charge between divisions for inter-divisional transactions, affecting each division's reported profit and performance metrics. A, C and D are external transactions.
Question 29
What is the general principle for setting an optimal transfer price?
Select an option first.
Correct answer: B — The transfer price should be set at the opportunity cost of the supplying division — the minimum it needs to be no worse off by transferring internally rather than selling externally
Explanation: The theoretical optimal transfer price = Marginal cost of supply + Opportunity cost of transferring internally (any contribution forgone from external sales). A, C and D are specific methods that may or may not represent the optimal price.
Question 30
In transfer pricing, when the supplying division has spare capacity and there is NO external market for the intermediate product, the minimum transfer price should be:
Select an option first.
Correct answer: B — Variable (marginal) cost of production — the supplying division forgoes no external contribution so no opportunity cost premium is needed
Explanation: With spare capacity and no external market: opportunity cost = 0. Therefore minimum TP = Marginal cost. This ensures the supplying division is no worse off and enables the group to optimise profit. A, C and D add mark-ups not justified by the absence of opportunity cost.
More free ACCA topics
Management Accounting401
Strategic Business Reporting400
Advanced Taxation400
Corporate and Business Law398
Advanced Financial Management396
Financial Reporting395
Financial Management394
Performance Management391
Financial Accounting388
Business and Technology300
Taxation299
Strategic Business Leader297
Advanced Audit and Assurance296
Audit and Assurance294
Ten questions in
- The ones you miss are saved as a drill you can repeat
- Your place is kept, on this device and any other
- A streak, if that is the thing that gets you back tomorrow
Every question on this page stays free and open either way.