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Free Questions › ACCA › Advanced Performance Management
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 151
What is the 'selling price variance'?
Select an option first.
Correct answer: B — The difference between actual selling price and standard selling price, multiplied by actual units sold — measuring whether prices achieved were above or below plan
Explanation: Selling Price Variance = (Actual price − Standard price) × Actual units sold. A is volume variance; C is volume effect; D is mix variance — different concepts.
Question 152
What is meant by 'management by exception'?
Select an option first.
Correct answer: B — A management control principle where managers focus their attention on significant variances from plan, ignoring items within acceptable tolerance — directing effort where it is most needed
Explanation: Management by exception: significant variances (material in size or character) trigger investigation and action. Routine variances within tolerance are ignored, saving management time. A, C and D are wrong.
Question 153
What is 'fixed overhead capacity variance'?
Select an option first.
Correct answer: B — The variance arising because the actual hours worked differed from the budgeted hours — measuring whether the workforce's capacity was fully utilised
Explanation: Fixed Overhead Capacity Variance = (Actual hours worked − Budgeted hours) × Standard fixed overhead absorption rate per hour. It shows whether capacity (hours available) was used as planned. A is expenditure; C is spending; D is efficiency.
Question 154
What is 'total quality management' (TQM)?
Select an option first.
Correct answer: B — A management philosophy committed to continuous improvement and delivering quality throughout ALL processes and products — involving every employee at every level, aiming to eliminate defects rather than inspect them out
Explanation: TQM (Deming, Juran, Crosby): quality is everyone's responsibility, prevention is better than inspection, and continuous improvement (kaizen) is embedded in the culture. A, C and D represent traditional quality control approaches.
Question 155
What are the four categories of quality costs?
Select an option first.
Correct answer: B — Prevention costs, appraisal costs, internal failure costs, and external failure costs
Explanation: Quality costs framework: Prevention (designing quality in), Appraisal (testing and inspection), Internal Failure (defects found before delivery — scrap, rework), External Failure (defects found by customers — returns, warranty, reputation damage). A, C and D are cost classifications, not quality cost categories.
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Question 156
Which quality cost category represents the MOST expensive failure?
Select an option first.
Correct answer: B — External failure costs — defects that reach the customer damage reputation, trigger returns and warranties, and may lose customers permanently
Explanation: External failure costs are the highest-consequence quality cost: once defects reach customers, the damage to relationships and reputation can be far greater than the direct costs of returns and warranties. Investing more in prevention (A) reduces all other categories. C and D are cheaper to address.
Question 157
What is the 'Kaizen' approach to continuous improvement?
Select an option first.
Correct answer: B — A Japanese management philosophy of continuous, incremental improvement involving all employees — small, steady improvements every day rather than occasional large changes
Explanation: Kaizen (Japanese: 'change for better'): small, continuous improvements in all processes, involving all employees. It contrasts with Business Process Re-engineering (BPR) which involves radical redesign. A and C describe other approaches; D is too narrow.
Question 158
What is 'target costing'?
Select an option first.
Correct answer: B — A market-driven approach where the target selling price is determined by the market, the target profit margin is set, and the target cost is derived by subtraction (Target cost = Target price − Target profit)
Explanation: Target costing (Toyota): starts from market price → subtracts desired profit → derives required (target) cost. Value engineering then reduces actual costs to the target. A, C and D describe cost-plus approaches that ignore market constraints.
Question 159
What is 'lifecycle costing'?
Select an option first.
Correct answer: B — A costing approach that tracks and accumulates costs and revenues over the ENTIRE life of a product or asset — from development and launch through growth, maturity, and decline to disposal — to assess total profitability
Explanation: Lifecycle costing captures all costs (R&D, design, manufacturing, marketing, after-sales, disposal) and revenues across the product's full life. Many costs are 'locked in' during design but incurred later. A, C and D are too narrow.
Question 160
What is 'throughput accounting'?
Select an option first.
Correct answer: B — A management accounting approach based on the Theory of Constraints — focusing on the rate at which the system generates money (throughput = sales − direct material costs) and managing the system's bottleneck (constraint)
Explanation: Throughput accounting (Goldratt): Throughput = Revenue − Material costs. The goal is to maximise throughput while minimising operating expenses and inventory. The constraint (bottleneck) limits throughput and must be managed first. A, C and D are wrong.
Question 161
What is the 'Theory of Constraints' (TOC)?
Select an option first.
Correct answer: B — A management philosophy that identifies and manages the binding constraint (bottleneck) in a system — the single weakest link that limits the entire system's performance
Explanation: TOC (Goldratt): every system has a bottleneck that limits output. The five focusing steps: Identify, Exploit, Subordinate, Elevate, and Return. Removing or elevating the constraint improves overall system performance. A, C and D are wrong.
Question 162
In throughput accounting, the 'throughput contribution' per unit is:
Select an option first.
Correct answer: B — Selling price minus direct material cost per unit — all other costs are treated as 'operating expenses' (period costs) not allocated to units
Explanation: Throughput = Revenue − Direct material (only truly variable cost in the short run). Labour, overhead, and other costs are period costs. This is more extreme than marginal costing (which includes labour as variable). A, C and D are wrong.
Question 163
What is 'environmental management accounting' (EMA)?
Select an option first.
Correct answer: B — A subset of management accounting that identifies, measures, and allocates environmental costs and revenues — and assesses the environmental impact of business activities — to improve eco-efficiency and support sustainability decisions
Explanation: EMA provides managers with financial and physical data on environmental impacts (energy use, waste, emissions) to identify cost savings and assess sustainability. A, C and D are too narrow or wrong.
Question 164
What are 'environmental costs' in management accounting?
Select an option first.
Correct answer: B — Direct environmental costs (waste disposal, remediation, pollution permits) plus indirect environmental costs (regulatory compliance, environmental management systems) and reputational/contingent costs (potential liability for damage)
Explanation: Environmental costs span conventional (waste disposal), contingent (future liability), relationship (reputation damage), and reputational categories. Identifying all of them reveals the true cost of environmental impacts and drives eco-efficiency. A, C and D are too narrow.
Question 165
What is 'activity-based costing' (ABC)?
Select an option first.
Correct answer: B — A costing method that assigns overhead costs to products based on the activities they consume — using cost drivers that reflect the actual causes of overhead cost
Explanation: ABC: identifies activities → assigns costs to activities → assigns activity costs to products/services using cost drivers (e.g., purchase orders, machine setups, customer orders). More accurate than traditional methods for complex product mixes. A is traditional absorption; C and D are wrong.
Question 166
What is a 'cost driver' in activity-based costing?
Select an option first.
Correct answer: B — The factor that causes (drives) a cost to be incurred — such as number of purchase orders (driving purchasing cost) or number of machine setups (driving setup cost)
Explanation: Cost drivers in ABC are the factors that cause overhead costs — they link activity costs to the products/services that demand those activities. A, C and D are not cost drivers.
Question 167
What is a 'contribution margin' and how is it used in performance analysis?
Select an option first.
Correct answer: B — Revenue minus variable costs — the amount available to cover fixed costs and contribute to profit. Used in break-even analysis, marginal costing decisions, and contribution per limiting factor analysis
Explanation: Contribution = Revenue − Variable costs. Used for: break-even analysis, marginal decisions, limiting factor analysis, and CVP. A and D are profit measures; C is a different sub-total.
Question 168
What is 'break-even analysis' and what does the break-even point represent?
Select an option first.
Correct answer: B — The break-even point is the level of sales (in units or revenue) at which total revenue equals total costs — no profit and no loss. Below this level, the company makes a loss; above it, a profit
Explanation: Break-even: Total Revenue = Total Costs. BEP (units) = Fixed costs ÷ Contribution per unit. A, C and D misdefine the break-even point.
Question 169
What is the 'margin of safety'?
Select an option first.
Correct answer: B — The difference between actual (or budgeted) sales and the break-even sales — representing the buffer before the company starts making a loss
Explanation: Margin of safety = Actual sales − Break-even sales (in units or $). It shows how far sales can fall before the company reaches break-even. A, C and D are wrong.
Question 170
What is 'customer profitability analysis' (CPA)?
Select an option first.
Correct answer: B — Analysing the revenue generated from individual customers or customer segments and deducting the costs of serving them — to identify which customers are profitable and which are not
Explanation: CPA uses ABC to allocate customer-driven costs (ordering, delivery, returns, credit management) to individual customers, revealing that some 'large' customers may actually be unprofitable due to service demands. A, C and D are different profitability analyses.
Question 171
What is the 'whale curve' in customer profitability analysis?
Select an option first.
Correct answer: B — A graph plotting cumulative profitability against customers ranked from most to least profitable — typically showing that a small percentage of customers generate 100%+ of profits, while unprofitable customers erode those profits
Explanation: The whale curve (named for its whale shape): when customers are ranked by profitability and cumulative profit is plotted, the typical shape shows: profits rise sharply (top 20% of customers generate 120% of profit), then decline as unprofitable customers are included. A, C and D are wrong.
Question 172
What is 'flexible budgeting' and why is it important?
Select an option first.
Correct answer: B — Restating the original (fixed) budget for the actual level of activity achieved — enabling a fairer comparison between actual and budgeted costs, controlling for volume differences
Explanation: A flexible budget adjusts all variable costs to the actual production/sales volume. Comparing actual costs against the flexed (not fixed) budget provides meaningful variances — if only fixed budgets are used, volume differences distort the cost analysis. A, C and D are wrong.
Question 173
What is 'variance analysis' used for in performance management?
Select an option first.
Correct answer: B — Investigating the causes of differences between actual and standard (or budgeted) performance — to identify problems, learn lessons, and take corrective action
Explanation: Variance analysis: decomposes the difference between actual and planned performance into component causes (price, volume, efficiency, mix, etc.) to focus management attention on the most significant issues. A, C and D are wrong.
Question 174
What is a 'planning variance'?
Select an option first.
Correct answer: B — A variance that arises because the original standard was based on inaccurate or outdated assumptions — the difference between the original standard and a revised standard that better reflects current conditions
Explanation: Planning variances (ex post analysis): if an original standard was set when market conditions were different, part of the variance may be due to planning error rather than operational performance. Separating planning from operational variances gives a fairer picture. A, C and D are wrong.
Question 175
What is an 'operational variance'?
Select an option first.
Correct answer: B — The difference between actual performance and a revised (ex post) standard that reflects current conditions — measuring how efficiently operations performed given what was actually achievable
Explanation: Operational variances separate the efficiency of actual operations from the accuracy of the original plan. A manager should only be held accountable for operational variances (within their control), not planning variances (set by others). A, C and D are wrong.
Question 176
What is 'total quality management' (TQM) focused on primarily?
Select an option first.
Correct answer: B — Prevention of defects through process improvement and organisational culture — making quality everyone's responsibility rather than a specialist function's task
Explanation: TQM shifts quality management from 'inspect and fix' to 'design out defects'. Prevention costs (training, process improvement) reduce appraisal and failure costs. A, C and D describe reactive or partial approaches.
Question 177
What does 'Six Sigma' focus on?
Select an option first.
Correct answer: B — Reducing process variation and defects to an extremely low level (3.4 defects per million opportunities) through systematic problem-solving (DMAIC) and statistical process control
Explanation: Six Sigma uses DMAIC (Define, Measure, Analyse, Improve, Control) to reduce variation and near-eliminate defects. It is highly data-driven and uses statistical methods. A, C and D are wrong.
Question 178
What is 'business process re-engineering' (BPR)?
Select an option first.
Correct answer: B — Fundamental and radical redesign of business processes from scratch to achieve dramatic improvements in performance (cost, quality, speed) — rather than incremental improvement
Explanation: BPR (Hammer & Champy): does not improve existing processes — it starts with a blank sheet and redesigns completely. Aimed at step-change improvements, not continuous incremental ones (Kaizen). A is Kaizen; C and D are different activities.
Question 179
What is 'environmental accounting'?
Select an option first.
Correct answer: B — The identification, measurement, and communication of information about an organisation's interaction with the natural environment — including environmental costs in management reporting and in external disclosures
Explanation: Environmental accounting embeds environmental costs and impacts into management decisions and external reporting, moving beyond compliance to strategic eco-efficiency. A, C and D are too narrow.
Question 180
What is a 'carbon footprint' in the context of environmental performance management?
Select an option first.
Correct answer: B — The total greenhouse gas emissions (direct and indirect) caused by an organisation's activities, expressed in CO₂ equivalent — a key environmental performance measure
Explanation: Carbon footprint measures GHG emissions across Scope 1 (direct), Scope 2 (energy purchased), and Scope 3 (value chain). Tracking and reducing the carbon footprint is a key environmental KPI. A, C and D are wrong.
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Strategic Business Reporting400
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Audit and Assurance300
Strategic Business Leader300
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