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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 61
Which of the following BEST describes the concept of 'controllability' in performance measurement?
Select an option first.
Correct answer: B — The principle that managers should only be assessed on performance measures for which they have genuine decision-making authority and influence
Explanation: The controllability principle: it is unfair and demotivating to judge managers on factors outside their control (e.g., currency fluctuations, central overhead allocations). Performance reports should distinguish controllable from non-controllable items. A, C and D are wrong.
Question 62
What is a 'divisional structure' in an organisation?
Select an option first.
Correct answer: B — An organisational design where the company is divided into semi-autonomous units (divisions) each responsible for a product, geography, or customer segment — with divisional managers having authority over revenues, costs, and often capital
Explanation: Divisionalisation creates decentralised profit or investment centres, each run as a quasi-independent business. This improves responsiveness and accountability. A, C and D describe other structures.
Question 63
What is the difference between a 'profit centre' and an 'investment centre'?
Select an option first.
Correct answer: B — A profit centre is responsible for revenues and costs but not capital investment decisions; an investment centre is responsible for revenues, costs, AND the assets employed (capital allocation)
Explanation: Profit centre: managers control revenues and costs. Investment centre: managers also control the assets used — hence ROI and RI are appropriate measures. A, C and D misstate the distinction.
Question 64
What is a 'cost centre' in the context of responsibility accounting?
Select an option first.
Correct answer: B — An organisational unit whose manager is accountable for costs incurred but has no direct responsibility for revenues or capital investment
Explanation: Cost centres (e.g., production department, HR, IT) are assessed on cost efficiency — keeping costs within budget. They don't control revenues. A describes a business unit or division; C and D are wrong.
Question 65
What is 'strategic management accounting' (SMA)?
Select an option first.
Correct answer: B — The application of accounting techniques to support strategic planning and control — extending traditional management accounting to include competitor analysis, market share, customer profitability, and long-run cost information
Explanation: SMA (Simmonds, Bromwich) extends management accounting beyond internal cost/profit data to include strategically relevant external information: competitor costs, market positioning, customer value, and long-term strategic drivers. A, C and D are too narrow.
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Question 66
What is 'competitor analysis' and why is it important in strategic performance management?
Select an option first.
Correct answer: B — Systematically examining competitors' strategies, capabilities, costs, and performance to understand competitive threats and identify strategic opportunities
Explanation: Competitor analysis informs strategic decisions — understanding where competitors have advantages (or weaknesses) helps the organisation position itself effectively and set meaningful performance targets. A is trend analysis; C and D are wrong.
Question 67
What is meant by 'competitive advantage' in strategic management?
Select an option first.
Correct answer: B — A distinctive set of capabilities or assets that enable an organisation to outperform competitors and create superior value for customers
Explanation: Competitive advantage (Porter) comes from cost leadership, differentiation, or focus — giving the organisation a sustainable edge over rivals. A, C and D are not competitive advantage.
Question 68
Porter identified two generic competitive strategies for achieving competitive advantage. What are they?
Select an option first.
Correct answer: B — Cost leadership (being the lowest-cost producer) and differentiation (offering unique features that customers value and pay a premium for)
Explanation: Porter's generic strategies: Cost Leadership (compete on lowest cost) and Differentiation (compete on unique value). Focus is a third strategy (applying either to a narrow market segment). A, C and D are not Porter's generic strategies.
Question 69
In the Balanced Scorecard, what is meant by the 'Internal Business Processes' perspective?
Select an option first.
Correct answer: B — The internal activities and capabilities that must be executed well to deliver value to customers and achieve financial goals — e.g., production cycle time, quality, and innovation processes
Explanation: Internal Processes: the key operational processes that must be efficient and effective to deliver customer value and achieve financial performance. A is financial; C is learning and growth; D is customer or external relations.
Question 70
What is the significance of cause-and-effect linkages in the Balanced Scorecard?
Select an option first.
Correct answer: B — They show how improvements in Learning & Growth drive better Internal Processes, which improve Customer outcomes, which ultimately drive Financial results — creating a coherent management system
Explanation: The BSC's power lies in the logical chain connecting the four perspectives. Without these linkages, the scorecard is just a collection of measures, not an integrated management tool. A, C and D are wrong.
Question 71
What are 'non-governmental organisations' (NGOs) and how do performance objectives differ from the private sector?
Select an option first.
Correct answer: B — Mission-driven organisations (charities, aid agencies, advocacy groups) where success is measured by social impact achieved, not profit — performance measures focus on beneficiary outcomes, resource efficiency, and stakeholder accountability
Explanation: NGOs have social/environmental missions rather than profit objectives. Performance is measured by impact (lives improved, pollution reduced) alongside efficiency and accountability to donors/trustees. A, C and D describe different entities.
Question 72
In public sector organisations, what does 'value for money' (VFM) mean?
Select an option first.
Correct answer: B — Achieving the best possible outcome for the resources invested — assessed through Economy (obtaining resources cheaply), Efficiency (using resources productively), and Effectiveness (achieving intended outcomes)
Explanation: VFM = the three Es applied together. Public sector bodies must demonstrate they are using public funds responsibly and achieving intended outcomes. A, C and D are partial or wrong interpretations.
Question 73
What is a 'performance prism'?
Select an option first.
Correct answer: B — A multi-dimensional performance management framework examining five facets: stakeholder satisfaction, stakeholder contribution, strategies, processes, and capabilities — with stakeholders at the centre (not just shareholders)
Explanation: The Performance Prism (Neely, Adams) extends the BSC by placing ALL stakeholders (employees, suppliers, communities, regulators, investors) at the centre, asking both what stakeholders want and what the organisation needs from them. A, C and D are wrong.
Question 74
What is the main limitation of the Balanced Scorecard?
Select an option first.
Correct answer: B — It can become too complex with too many measures, potentially lacking focus; it does not always show how different perspectives are linked; it was primarily designed for the private sector and may need adaptation for other sectors
Explanation: BSC limitations: proliferation of measures, difficulty establishing cause-and-effect, private-sector bias, and the risk that strategy maps are drawn without empirical validation. A says 'too few' (wrong — usually too many); C is the opposite of BSC's intent; D is wrong (1990s).
Question 75
A company operating in multiple international jurisdictions sets transfer prices at cost plus 5% for all inter-divisional sales. A regulatory authority challenges this on the basis that comparable uncontrolled transactions (arm's length) in the market are priced at cost plus 15%. What is the consequence?
Select an option first.
Correct answer: B — The tax authority may challenge the pricing, disallow the deduction, and reallocate profits to the higher-tax jurisdiction — potentially triggering additional taxes, penalties, and interest
Explanation: International transfer pricing: OECD guidelines require arm's-length pricing. Using cost+5% when market is cost+15% shifts profit away from the high-tax country. Tax authorities can reallocate profits and charge additional tax. A underestimates regulatory power; C overstates the immediate remedy; D is wrong.
Question 76
A company evaluates divisional performance using ROI based on net book value of assets. Division A reports ROI of 30% and Division B reports ROI of 18%. The group's cost of capital is 15%. Which statement is MOST accurate?
Select an option first.
Correct answer: B — Both divisions add value (ROI > 15%), but using net book value overstates ROI of older divisions (assets depreciated down), making direct comparison misleading — residual income or EVA based on replacement cost would be fairer
Explanation: Net book value (NBV) falls as assets depreciate, artificially inflating ROI over time. An older division with fully-depreciated assets may show high ROI without true performance superiority. RI or EVA with consistent asset values (replacement cost) is fairer. A, C and D are wrong.
Question 77
In designing a reward system for a strategic business unit (SBU) manager, which of the following criteria is MOST important for effective performance management?
Select an option first.
Correct answer: B — The measures used must be controllable by the manager, aligned with strategy, clearly communicated, and the reward must be large enough to motivate but not create excessive risk-taking
Explanation: Effective reward systems: controllability, strategic alignment, clarity, and balance (not so large that it creates perverse incentives to manipulate results or take excess risk). A, C and D are wrong or too simplistic.
Question 78
An NGO measures its performance using 'cost per beneficiary' and 'percentage of target population reached'. These are examples of which types of measures?
Select an option first.
Correct answer: A — Financial and non-financial measures combining Economy and Effectiveness elements
Explanation: Cost per beneficiary measures Economy (input cost relative to output). Percentage of target population reached measures Effectiveness (achieving the intended outcome). Together they represent two of the three Es. B, C and D are wrong.
Question 79
What is the main challenge of applying the Balanced Scorecard to a public sector organisation?
Select an option first.
Correct answer: B — The BSC's financial perspective is less dominant — the primary objective is societal impact, not profit — requiring adaptation so that mission/outcomes sit at the top of the hierarchy instead of financial returns
Explanation: In the public sector, the mission/outcome perspective replaces 'financial' at the top. Financial management becomes a constraint (staying within budget) rather than the ultimate goal. A, C and D are wrong.
Question 80
A company uses only annual profit as its performance measure. A manager invests heavily in customer relationship management and staff training. Why might annual profit be a misleading indicator of this manager's performance?
Select an option first.
Correct answer: B — The investment in relationships and people will reduce short-term profit but should improve future revenue and retention — annual profit is a lagging indicator that misses the strategic value being built
Explanation: Annual profit misses the building of intangible value (customer loyalty, employee capability). The BSC and lead/lag indicator framework address this by including non-financial measures alongside profit. A, C and D are wrong.
Question 81
Which of the following BEST explains why a division's Residual Income can be positive while the group's shareholder value is being destroyed?
Select an option first.
Correct answer: B — If the cost of capital used in RI calculation is lower than the true cost of equity (opportunity cost to shareholders), then RI overstates value creation — projects can pass the RI test but still fail to earn the shareholders' required return
Explanation: The cost of capital in RI is management's estimate, which may understate shareholders' true required return. EVA with proper WACC calculations is more reliable. A and C are wrong; D is untrue (EVA involves additional adjustments).
Question 82
A company sets its performance targets based purely on historical performance. What are the risks of this approach?
Select an option first.
Correct answer: B — Targets may be set too low if past performance was poor or below industry standards — benchmarking against competitors or best practice provides more demanding and strategically relevant targets
Explanation: Basing targets only on history perpetuates past mediocrity and ignores competitive dynamics. External benchmarking (against competitors, best practice) provides more meaningful targets. A, C and D are wrong.
Question 83
What is 'strategic drift'?
Select an option first.
Correct answer: B — The gradual, incremental shift of an organisation away from its strategic intent, often driven by short-term operational pressures, without deliberate strategic decision — the organisation drifts from its chosen strategic direction
Explanation: Strategic drift (Johnson): organisations often make incremental adaptations without realising they have moved far from their intended strategy. This divergence eventually leads to crisis when the environment changes significantly. A, C and D are operational issues.
Question 84
What is 'beyond budgeting' as an alternative approach to traditional performance management?
Select an option first.
Correct answer: B — A management philosophy that advocates replacing fixed annual budgets with rolling forecasts, relative performance targets, and devolved decision-making — to give organisations more flexibility and accountability in dynamic environments
Explanation: Beyond Budgeting (Hope & Fraser): replaces annual fixed budgets with adaptive targets, rolling forecasts, and relative benchmarks. It aims to reduce the gaming and dysfunctional behaviour associated with traditional fixed budgets. A, C and D are wrong.
Question 85
A company uses a 'bonus pool' approach where 10% of total divisional profit is set aside for bonuses, split among divisional managers. What dysfunctional behaviour might this create?
Select an option first.
Correct answer: B — Managers may focus on maximising their own division's profit at the expense of group-wide optimisation — e.g., rejecting profitable inter-divisional trade if it benefits another division's profit more than their own
Explanation: Divisional bonus structures create incentives to maximise divisional profit, which may conflict with group-wide optimal decisions (e.g., refusal to transfer at a group-optimal price, or hoarding resources). A assumes perfect goal congruence; C and D are wrong.
Question 86
In which of the following situations would 'market price' be the LEAST appropriate transfer price?
Select an option first.
Correct answer: B — When there is an imperfect external market (e.g., the selling division would need to discount significantly to sell externally) — making the 'market price' an unrealistic reference point
Explanation: Market price as TP is most appropriate when a genuine, competitive external market exists. An imperfect or illiquid market makes the 'market price' unreliable and potentially unfair. A, C and D are situations where market price is more appropriate.
Question 87
What is the 'tableau de bord' and how does it differ from the Balanced Scorecard?
Select an option first.
Correct answer: B — The tableau de bord is a French management dashboard developed before the BSC — it links performance indicators to specific managerial action variables, providing each manager with a personalised dashboard of controllable metrics, rather than a universal company-wide framework
Explanation: Tableau de bord: pre-dates BSC, more decentralised — each manager gets their own indicators linked to their action variables. The BSC is a top-down, company-wide framework. A, C and D are wrong.
Question 88
What does a 'Fitzgerald and Moon building block model' identify as three building blocks of performance measurement?
Select an option first.
Correct answer: B — Dimensions (what to measure), Standards (targets), and Rewards (how to incentivise) — highlighting that all three must be designed coherently for the system to work
Explanation: Fitzgerald and Moon's Building Block Model (for service businesses): Dimensions (results and determinants), Standards (ownership, achievability, equity), Rewards (clarity, motivation, controllability). Coherence across all three is essential. A, C and D are wrong.
Question 89
What is the 'results and determinants' framework in Fitzgerald and Moon's model?
Select an option first.
Correct answer: B — Results are the performance outcomes (financial performance, competitiveness); determinants are the factors that drive those results (quality, flexibility, resource utilisation, innovation, customer satisfaction) — linking cause to effect
Explanation: Fitzgerald and Moon identified that service business performance should measure: (1) Results: financial performance + competitiveness; (2) Determinants: quality, flexibility, resource utilisation, innovation, customer satisfaction — the drivers of results. A, C and D misstate the framework.
Question 90
What is the 'strategic management process' and what are its main stages?
Select an option first.
Correct answer: B — The sequential process of: (1) strategic analysis (understanding the environment and capabilities), (2) strategic choice (generating and selecting strategies), and (3) strategic implementation (putting chosen strategies into action) — with performance review feeding back into each stage
Explanation: The Johnson, Scholes & Whittington model: Analyse → Choose → Implement → Review. Performance management underpins each stage. A, C and D are operational activities.
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