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Free ACCA Advanced Performance Management Practice Questions & Answers
400 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 301
What is 'reputational risk'?
Select an option first.
Correct answer: B — The risk that negative publicity, unethical behaviour, or failures in service quality damage the organisation's reputation — leading to loss of customers, revenue, and difficulty attracting employees and partners
Explanation: Reputational risk: can be triggered by product failures, ethical breaches, data security incidents, or regulatory sanctions. Reputational damage can cause lasting financial harm even after the original issue is resolved. A, C and D are other risk types.
Question 302
What is 'demand forecasting' and why is it important for performance management?
Select an option first.
Correct answer: B — Estimating the volume and timing of future customer demand — essential for resource planning, capacity decisions, inventory management, workforce scheduling, and setting realistic performance targets
Explanation: Demand forecasting drives planning decisions across operations, supply chain, finance, and HR. Accurate forecasts enable efficient resource use; poor forecasts lead to excess inventory or stockouts. A, C and D are too narrow.
Question 303
What is 'price elasticity of demand' (PED) and how does it affect pricing strategy?
Select an option first.
Correct answer: B — The percentage change in quantity demanded resulting from a 1% change in price — if PED < 1 (inelastic), revenue can be increased by raising price; if PED > 1 (elastic), raising price reduces total revenue
Explanation: PED: if elastic (>1), demand is sensitive to price — raising price reduces revenue. If inelastic (
Question 304
What is 'cost-plus pricing'?
Select an option first.
Correct answer: B — Adding a fixed percentage mark-up to the cost of a product to determine the selling price — e.g., full cost + 20% profit margin
Explanation: Cost-plus pricing: simple, ensures cost recovery, but ignores market demand and competitor prices. It may result in prices too high (losing sales) or too low (leaving money on the table). A and C describe other pricing methods; D describes value-based pricing.
Question 305
What is 'marginal cost pricing'?
Select an option first.
Correct answer: B — Setting the selling price equal to or just above the variable (marginal) cost — covers only variable costs, making any contribution to fixed costs. Used for spare capacity or market entry situations
Explanation: Marginal cost pricing: price = variable cost. No contribution to fixed costs unless volume-based. Appropriate for one-off orders, spare capacity, or penetrating a new market without disturbing main market pricing. A, C and D are different pricing methods.
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Question 306
What is 'value-based pricing'?
Select an option first.
Correct answer: B — Setting the selling price based on the perceived value the customer attributes to the product — rather than cost. Premium pricing is possible when customers perceive high value relative to alternatives
Explanation: Value-based pricing: captures consumer surplus by pricing at what customers are willing to pay. Requires deep understanding of customer perceptions and willingness to pay. A, C and D are cost-based or competitor-based approaches.
Question 307
What is 'transfer pricing' in an international context and what is the 'arm's length principle'?
Select an option first.
Correct answer: B — The internal price between related entities in different countries — the arm's length principle requires this price to be the same as if the transaction had occurred between unrelated parties in an open market
Explanation: Arm's length principle (OECD): multinational transfer prices must mirror what independent parties would agree. This prevents profit-shifting to low-tax jurisdictions. A, C and D are wrong.
Question 308
A company collects real-time sales data from 5,000 stores globally, totalling 2 terabytes per day, in both structured (sales transactions) and unstructured (customer reviews, social media) formats. Which of the 5 Vs best describes this scenario?
Select an option first.
Correct answer: B — Volume (2TB daily), Velocity (real-time collection), and Variety (structured + unstructured) — all three are clearly exhibited
Explanation: The scenario exhibits: Volume (massive scale), Velocity (real-time generation), and Variety (structured transactions + unstructured text). Veracity (quality) and Value (useful insights) may also be relevant but are not explicitly described. B correctly identifies the three clear Vs.
Question 309
A company uses predictive analytics to forecast customer churn. The model identifies 10,000 customers as 'high risk' of leaving within 90 days. Management uses this to target retention campaigns. What type of analytics is the targeting response?
Select an option first.
Correct answer: B — Prescriptive analytics — the prediction (predictive) has already occurred; deciding which customers to target with what incentive to achieve the best retention outcome is a prescriptive decision
Explanation: Predictive: identified who will churn. Prescriptive: recommending the optimal intervention (which offer, which channel, which timing) to maximise retention at minimum cost. A, C and D are earlier stages in the analytics hierarchy.
Question 310
What is 'Goodhart's Law' and why is it critical for performance measurement system design?
Select an option first.
Correct answer: B — When a measure becomes a target, it ceases to be a good measure — because people optimise for the measured indicator (gaming) rather than the underlying goal it was supposed to represent
Explanation: Goodhart's Law: fundamental challenge in performance management. If hospital waiting times are targeted, hospitals may game them (discharging patients prematurely). Effective PM design uses multiple measures and qualitative checks. A, C and D are wrong.
Question 311
A company's CRM system shows that Customer X spends $200,000 per year but generates 40% of all customer service calls. How would customer profitability analysis use this information?
Select an option first.
Correct answer: B — Apply activity-based costing to allocate customer service costs to Customer X — the 40% call share means a disproportionate ABC cost allocation that may render X unprofitable despite high revenue
Explanation: CPA with ABC: high revenue customers can be unprofitable if they demand excessive service (calls, returns, special orders, expedited deliveries). Activity drivers reveal the true cost of serving each customer. A misses the profitability angle; C and D are wrong responses.
Question 312
A manufacturing company uses an ERP system. How does the ERP improve divisional performance management compared to separate departmental systems?
Select an option first.
Correct answer: B — ERP provides a single, real-time, integrated database — eliminating reconciliation between systems, reducing data errors, and enabling managers to see how their decisions affect other divisions immediately
Explanation: ERP integration: when a sales order is entered, the system simultaneously updates inventory, production scheduling, and accounts receivable. This real-time, integrated view improves decision quality and performance monitoring. A, C and D are wrong or too narrow.
Question 313
Which of the following BEST describes the role of a 'balanced scorecard' combined with a 'strategy map' in digital performance management?
Select an option first.
Correct answer: B — The strategy map communicates the cause-and-effect logic of the strategy visually; the BSC operationalises it with specific measures and targets across four perspectives — together they provide a coherent digital performance management framework
Explanation: Strategy map: shows the 'why' (how each objective causes the next). BSC: shows the 'what' and 'how much' (measures and targets). Together, they form a complete performance management system. A, C and D are wrong.
Question 314
What is 'natural language processing' (NLP) and how is it used in performance management?
Select an option first.
Correct answer: B — A branch of AI that enables computers to understand, interpret, and generate human language — used in PM to analyse unstructured text data such as customer reviews, employee feedback, and news sentiment
Explanation: NLP: used to mine customer reviews for satisfaction insights, analyse board meeting transcripts for governance, or scan news for reputational risk signals. A, C and D are wrong.
Question 315
What is 'robotic process automation' (RPA) and how does it affect management accounting?
Select an option first.
Correct answer: B — Software robots that automate repetitive, rule-based tasks (e.g., data entry, report generation, variance calculation) — freeing management accountants to focus on analysis and interpretation
Explanation: RPA: automates structured, repetitive processes without changing underlying IT systems. In management accounting: automates variance calculation, budget consolidation, and report distribution — enabling accountants to add more analytical value. A, C and D are wrong.
Question 316
A company notices that its revenue forecast using a simple linear trend is consistently too high in Q4. What does this suggest?
Select an option first.
Correct answer: B — The data has a seasonal component that the linear trend model does not capture — a seasonal adjustment should be applied to the forecast
Explanation: If forecasts are systematically biased in specific periods, the model is missing a seasonal pattern. A seasonally-adjusted model (or time series decomposition) would improve accuracy. A, C and D are wrong.
Question 317
What is a 'rolling three-year average' used for in forecasting and planning?
Select an option first.
Correct answer: B — Smoothing annual fluctuations by averaging the last three years' data — commonly used for budgeting baseline costs or setting capital expenditure allowances
Explanation: Rolling averages smooth volatility: a three-year rolling average dampens year-to-year fluctuations and provides a more stable basis for planning assumptions. A, C and D are wrong.
Question 318
In pricing strategy, what is 'predatory pricing'?
Select an option first.
Correct answer: B — Setting prices below cost deliberately to drive competitors out of the market, intending to raise prices once competition is eliminated — often illegal under competition law
Explanation: Predatory pricing: anticompetitive practice — loss-leading to eliminate rivals, then exploiting monopoly power. Prohibited under competition law in most jurisdictions. A, C and D describe other pricing approaches.
Question 319
What is 'price discrimination'?
Select an option first.
Correct answer: B — Charging different prices to different customers for the same product or service based on their willingness to pay — maximising revenue by capturing more consumer surplus
Explanation: Price discrimination: first degree (perfect — individual pricing), second degree (volume discounts), third degree (segment pricing — student/senior/peak/off-peak). Requires ability to segment markets and prevent arbitrage. A, C and D are wrong.
Question 320
What is 'dynamic pricing'?
Select an option first.
Correct answer: B — An algorithmic pricing strategy where prices adjust in real time based on demand, competition, inventory levels, and other factors — common in airlines, hotels, and ride-sharing
Explanation: Dynamic pricing: prices fluctuate continuously based on real-time data (time of day, weather, competitor pricing, remaining capacity). Enabled by prescriptive analytics and ML. A, C and D describe static pricing approaches.
Question 321
What is 'market skimming' pricing strategy?
Select an option first.
Correct answer: B — Setting a high initial price to capture maximum value from early adopters (who have high willingness to pay), then reducing the price over time as the market matures — used when a product is innovative and differentiated
Explanation: Skimming: captures consumer surplus from price-insensitive early adopters, then progressively lowers price to reach wider markets. Used for: new technology products, pharmaceuticals, luxury goods. A is penetration pricing; C is predatory; D is parity pricing.
Question 322
What is 'penetration pricing' and when is it used?
Select an option first.
Correct answer: B — Setting a deliberately low initial price to rapidly gain market share, build volume, and establish the product before competitors can respond — then raising prices once market share is established
Explanation: Penetration pricing: appropriate when: the market is price-sensitive, volume economies are significant, or rapid adoption is critical to network effects. The low initial price builds customer base quickly. A is skimming; C is parity; D is cost-based.
Question 323
What is 'sustainability reporting' and how does it relate to performance management?
Select an option first.
Correct answer: B — The practice of reporting on the economic, environmental, and social (ESG) impacts of an organisation's activities — increasingly required by stakeholders (investors, regulators, customers) and linked to long-term value creation
Explanation: Sustainability/ESG reporting: connects non-financial environmental and social performance to business strategy. Increasingly mandatory (e.g., IFRS S1/S2 climate standards). A, C and D are too narrow.
Question 324
What is a 'shadow price' in the context of linear programming and performance management?
Select an option first.
Correct answer: B — The increase in the objective function value (e.g., contribution) per unit increase in the binding constraint (e.g., one extra unit of a scarce resource) — measuring the value of relaxing the constraint
Explanation: Shadow price: shows how much more contribution (or less cost) would be generated by acquiring one more unit of a binding constraint. Informs decisions about paying premiums for additional capacity. A, C and D are wrong.
Question 325
What is 'linear programming' and when is it used in performance management?
Select an option first.
Correct answer: B — A mathematical technique for optimising an objective (e.g., maximising contribution) subject to linear constraints (e.g., limited resources) — used when multiple products compete for scarce resources and the relationships are linear
Explanation: Linear programming: identifies the optimal production/resource allocation mix when multiple constraints limit output. Relevant when: multiple products, limited resources, and the objective is to maximise contribution or minimise cost. A, C and D are wrong.
Question 326
A company has the following regression equation for sales (Y): Y = 500,000 + 1,200X, where X = advertising spend ($000s). If advertising spend is $50,000, what is the forecast sales?
Select an option first.
Correct answer: B — $560,000
Explanation: Y = 500,000 + 1,200 × 50 = 500,000 + 60,000 = $560,000. A ignores the advertising effect; C uses only the coefficient; D misapplies the formula.
Question 327
What does the 'coefficient of determination' (R²) measure in regression analysis?
Select an option first.
Correct answer: B — The proportion of the variation in the dependent variable (Y) explained by the independent variable(s) (X) — an R² of 0.85 means 85% of Y's variation is explained by X
Explanation: R²: goodness-of-fit measure. R² = 1: perfect fit. R² = 0: X explains nothing about Y. A is the slope (coefficient b); C is the intercept (a); D is the residual/error term.
Question 328
What is a 'correlation coefficient' (r) in statistical analysis?
Select an option first.
Correct answer: B — A measure of the strength and direction of the linear relationship between two variables, ranging from −1 (perfect negative correlation) to +1 (perfect positive correlation) — with 0 meaning no linear relationship
Explanation: Correlation coefficient r: ranges from −1 to +1. |r| close to 1 = strong relationship; |r| near 0 = weak. Note: r² = R² (coefficient of determination). A is wrong (r² = R², not r = R²); C and D are wrong.
Question 329
What is the role of 'internal audit' in performance management?
Select an option first.
Correct answer: B — Providing independent assurance that the organisation's risk management, governance, and internal control systems are operating effectively — and identifying improvements to performance management processes
Explanation: Internal audit: provides objective assurance on the adequacy and effectiveness of controls, risk management, and governance. It can also support performance management by auditing the integrity of KPI data. A, C and D are wrong.
Question 330
What is 'cyber risk' in the context of information management?
Select an option first.
Correct answer: B — The risk of financial loss, reputational damage, or operational disruption resulting from digital attacks, data breaches, ransomware, or system failures — a major operational and strategic risk in data-driven performance management
Explanation: Cyber risk: as organisations rely more on digital systems and big data, cyber attacks (data theft, ransomware) can disrupt operations, compromise sensitive performance data, and cause significant financial and reputational damage. A understates; C is wrong; D is wrong.
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Strategic Business Reporting400
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Audit and Assurance300
Strategic Business Leader300
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