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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 181
What is 'transfer pricing' and why does it matter for performance evaluation?
Select an option first.
Correct answer: B — The price at which one division charges another for internal transactions — affecting the profit reported by each division and therefore the performance measure used to evaluate divisional managers
Explanation: Transfer prices directly affect divisional profit figures, which in turn affect ROI, RI, and EVA calculations. Poor transfer pricing can create dysfunctional behaviour and distort performance measures. A, C and D are wrong.
Question 182
A company's fixed budget showed 10,000 units at $500,000 fixed costs and $200,000 variable costs. Actual production was 12,000 units with actual variable costs of $246,000. What is the variable cost variance on a flexed budget basis?
Select an option first.
Correct answer: B — $6,000 adverse
Explanation: Flexed budget variable cost for 12,000 units = ($200,000 ÷ 10,000) × 12,000 = $240,000. Actual variable cost = $246,000. Variance = $246,000 − $240,000 = $6,000 adverse. A uses fixed budget; C is incorrect; D reverses the sign.
Question 183
A company produces 1,000 units using 2,100 kg of material. Standard was 2 kg per unit at $5/kg. What is the material usage variance?
Select an option first.
Correct answer: A — $500 adverse
Explanation: Standard quantity for actual output = 1,000 × 2 = 2,000 kg. Actual used = 2,100 kg. Usage variance = (2,000 − 2,100) × $5 = −100 × $5 = $500 adverse (used 100 kg more than standard). B, C and D are wrong.
Question 184
Materials were purchased at $4.80 per kg (standard $5.00/kg). 2,100 kg was purchased. What is the material price variance?
Select an option first.
Correct answer: A — $420 favourable
Explanation: Price variance = (Standard price − Actual price) × Actual quantity = ($5.00 − $4.80) × 2,100 = $0.20 × 2,100 = $420 favourable. B reverses sign; C and D use wrong quantities.
Question 185
What is the 'sales mix variance'?
Select an option first.
Correct answer: B — The variance that arises when the actual sales mix (proportion of each product sold) differs from the planned mix — valued at standard profit margin to show the profit impact of selling a different mix
Explanation: Sales Mix Variance = (Actual mix − Budgeted mix) × Budgeted profit per unit. It shows whether the company sold relatively more or fewer high-margin products than planned. A is volume variance; C is price variance; D is not a standard variance.
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Question 186
What is the 'sales quantity variance'?
Select an option first.
Correct answer: B — The variance arising because total sales volume was different from budget (abstracting from mix differences) — showing the impact of selling more or fewer units in total, at the budgeted mix
Explanation: Sales Quantity Variance = (Actual total sales − Budgeted total sales) × Budgeted average profit per unit (at budgeted mix). Together, mix + quantity variances reconcile to the total sales volume variance. A, C and D are wrong.
Question 187
A company uses ABC and has identified 'customer order processing' as a cost pool with $200,000 total cost and 4,000 orders as the cost driver. Product A requires 500 customer orders. What cost is allocated to Product A?
Select an option first.
Correct answer: A — $25,000
Explanation: Cost per order = $200,000 ÷ 4,000 = $50 per order. Product A cost = 500 × $50 = $25,000. B uses 1,000 orders; C and D are wrong.
Question 188
In activity-based costing, how does it improve product costing compared to traditional absorption costing?
Select an option first.
Correct answer: B — It uses multiple cost drivers that reflect the actual consumption of resources by different products — avoiding the cross-subsidisation of high-volume simple products subsidising low-volume complex products
Explanation: Traditional costing uses one or few drivers (e.g., labour hours), which under-costs complex/low-volume products (which demand more activities per unit) and over-costs simple/high-volume ones. ABC uses activity-specific drivers for more accurate allocation. A, C and D are wrong.
Question 189
What is 'throughput accounting ratio' (TPAR)?
Select an option first.
Correct answer: B — Throughput contribution per limiting factor hour ÷ Operating cost per hour — a ratio used to assess whether a product should be produced given the constraint
Explanation: TPAR = Return per factory hour ÷ Cost per factory hour, where Return per hour = Throughput contribution ÷ Time on bottleneck. TPAR > 1 means the product generates more throughput than cost per bottleneck hour (viable). A, C and D are wrong.
Question 190
What is the environmental significance of including 'hidden costs' in environmental management accounting?
Select an option first.
Correct answer: B — Regulatory compliance costs, waste treatment, monitoring costs, and contingent liabilities are often buried in general overhead — revealing them enables better decision-making about eco-efficiency and sustainable operations
Explanation: Hidden environmental costs (absorbed into overhead) may be significant. Revealing them enables companies to: identify cost-reduction opportunities, make better investment decisions (e.g., pollution prevention vs. end-of-pipe treatment), and report accurately. A, C and D are wrong.
Question 191
What is 'full cost accounting' in an environmental context?
Select an option first.
Correct answer: B — Incorporating all environmental externalities (e.g., the cost of pollution damage borne by society) into the financial accounting of a business — expressing the true social and environmental cost of business activity
Explanation: Full cost (or true cost) accounting goes beyond conventional financial costs to include externalities — the environmental and social costs imposed on others not reflected in market prices (e.g., carbon damage). This is relevant in sustainability reporting and policy. A, C and D are too narrow.
Question 192
In a service company, what unique performance measurement challenges arise compared to manufacturing?
Select an option first.
Correct answer: B — Service outputs are intangible, often heterogeneous, and co-produced with customers — making quality harder to measure, output harder to define, and inventory buffers impossible (perishability)
Explanation: Service characteristics: intangibility, heterogeneity (variable quality), inseparability (produced and consumed together), perishability (cannot be stored). These make traditional costing and performance measurement tools designed for manufacturing less applicable. A, C and D are wrong.
Question 193
In not-for-profit organisations, which of the following is the most relevant performance framework?
Select an option first.
Correct answer: B — The three Es (Economy, Efficiency, Effectiveness) — ensuring resources are obtained cheaply, used productively, and achieve the intended social outcomes
Explanation: NFP organisations operate to achieve social/charitable objectives, not profit. The three Es provide a comprehensive framework for assessing performance without reference to profit. A is commercial; C is too narrow; D is for commercial divisions.
Question 194
What is a 'benchmarking club'?
Select an option first.
Correct answer: B — A formal arrangement where a group of non-competing organisations agree to share performance data and best practices, enabling all members to benchmark their performance and identify improvement opportunities
Explanation: Benchmarking clubs: non-competitors (often in different industries or regions) share data. This overcomes the unwillingness of direct competitors to share sensitive information while still enabling external comparison. A, C and D are wrong.
Question 195
What is 'contribution per limiting factor'?
Select an option first.
Correct answer: B — The contribution generated per unit of the scarce resource (limiting factor) — used to rank products and determine the optimal production plan when a constraint exists
Explanation: When a single resource is scarce, rank products by contribution per unit of that scarce resource. Produce in that order until the constraint is exhausted. A is profitability ratio; C is productivity; D is cost structure ratio.
Question 196
What is the 'make or buy' decision in management accounting?
Select an option first.
Correct answer: B — The decision of whether to manufacture a component internally or purchase it from an external supplier — based on a comparison of relevant (incremental) costs of making versus buying
Explanation: Make or buy: compare incremental cost of making (variable costs + any avoidable fixed costs) with the external purchase price. Also consider quality, reliability, and strategic factors. A, C and D are wrong.
Question 197
What is 'relevant costing'?
Select an option first.
Correct answer: B — A decision-making framework that includes only costs and revenues that are incremental (future, additional) as a result of the decision — excluding sunk costs, committed costs, and non-cash items
Explanation: Relevant costs: future, incremental, cash flows that differ between decision alternatives. Sunk costs (past), committed costs (unavoidable regardless), and non-cash items (depreciation, notional charges) are excluded. A, C and D are wrong or too broad.
Question 198
A company receives a one-off order at a price below full cost but above variable cost. Under what conditions should it accept the order?
Select an option first.
Correct answer: B — If the company has spare capacity and the selling price exceeds the marginal (variable) cost — the order makes a positive contribution and improves overall profitability in the short run
Explanation: With spare capacity: no opportunity cost of production. Any price above variable cost makes a positive contribution to fixed costs and profit. Rejecting the order means fixed costs are not covered. C and D are not the relevant tests. A is wrong.
Question 199
What is a 'joint cost' and how is it relevant to decision-making?
Select an option first.
Correct answer: B — The cost incurred up to the split-off point in a joint production process, before products become separately identifiable — joint costs are sunk at the point of the decision to process further and therefore irrelevant to the sell-or-process-further decision
Explanation: In joint production, costs incurred before split-off are sunk when deciding whether to process further. The decision rule: process further only if incremental revenue > incremental processing cost. Joint cost allocation is arbitrary and irrelevant to this decision. A, C and D are wrong.
Question 200
What is the 'sell or process further' decision rule in joint product costing?
Select an option first.
Correct answer: B — Process further only if the additional revenue from further processing exceeds the additional (incremental) costs of further processing — joint costs before split-off are irrelevant
Explanation: Sell-or-process-further: compare incremental revenue (selling price after further processing − split-off value) with incremental costs of further processing. The pre-split-off joint cost is sunk. A, C and D are wrong.
Question 201
What is a 'continuous improvement' (CI) culture and how does it affect performance management?
Select an option first.
Correct answer: B — An organisational culture where all employees are continuously seeking small, incremental improvements to processes, quality, and efficiency — supported by performance measures that reward innovation and learning, not just output
Explanation: Continuous improvement (Kaizen): part of every employee's role, every day. Performance management must support this by measuring innovation, learning, and process quality — not just financial outputs. A, C and D describe reactive or hierarchical approaches.
Question 202
In a healthcare provider, which of the following would be a relevant 'effectiveness' measure?
Select an option first.
Correct answer: B — Patient health outcomes — e.g., recovery rates, readmission rates, and patient-reported quality of life improvements
Explanation: Effectiveness measures achievement of intended outcomes — for a healthcare provider, this is patient health improvement. Cost per patient (A) is efficiency. Patients per day (C) is output. Budget compliance (D) is economy/compliance, not effectiveness.
Question 203
What is 'market segmentation analysis' in strategic performance management?
Select an option first.
Correct answer: B — Analysing the revenue and profitability of different customer groups, geographic markets, or product lines to identify which segments are most profitable and where strategic resources should be focused
Explanation: Market segmentation analysis: understanding performance differences between segments (e.g., age groups, regions, channels) enables resource allocation decisions and strategy adjustments. A, C and D are wrong.
Question 204
What does 'divisional autonomy' mean and what are its potential drawbacks?
Select an option first.
Correct answer: B — Divisions are granted decision-making authority over their own operations — but this can lead to sub-optimal group decisions if divisional interests conflict with group objectives (goal incongruence)
Explanation: Autonomy: divisions make their own decisions (faster, more responsive). Risk: divisional managers optimise for their division's metrics (e.g., ROI), potentially at the expense of group-wide optimisation. A and C are wrong; D is incorrect.
Question 205
What is the 'Pareto principle' (80:20 rule) and how is it applied in performance management?
Select an option first.
Correct answer: B — 80% of consequences (profits, defects, customer complaints) typically come from 20% of causes (customers, products, defect types) — enabling managers to focus on the vital few factors with the greatest impact
Explanation: Pareto principle: a small proportion of causes drives most of the impact. Applied to: customer profitability (top 20% of customers → 80% of profit), quality (20% of defect types → 80% of cost), and problem-solving (focus on the vital few). A inverts the point; C and D are wrong.
Question 206
What is 'quality function deployment' (QFD)?
Select an option first.
Correct answer: B — A structured approach to translating customer requirements ('voice of the customer') into specific product and process specifications — ensuring the design meets what customers actually want
Explanation: QFD (House of Quality): maps customer requirements to design specifications and manufacturing processes, ensuring the product is designed to meet customer needs from the outset. A, C and D are wrong.
Question 207
In the context of performance measurement, what is 'gaming'?
Select an option first.
Correct answer: B — The manipulation of reported performance data or the exploitation of loopholes in the measurement system to make performance appear better than it actually is — without making genuine improvements
Explanation: Gaming (or Goodhart's Law: 'when a measure becomes a target, it ceases to be a good measure'): managers manipulate indicators to hit targets without improving underlying performance. Examples: delaying expense recognition, cutting R&D to hit profit target. A, C and D are wrong.
Question 208
What is 'goal displacement' in performance management?
Select an option first.
Correct answer: B — When focus on achieving a specific performance measure causes managers to neglect broader organisational goals — the measure (means) becomes the end in itself, at the expense of the true goal
Explanation: Goal displacement: e.g., a hospital focusing on average waiting time metric may game the measure (rejecting complex cases) rather than improving overall patient care. The measure displaces the original goal. A, C and D are wrong.
Question 209
A division has the following data: Sales $3m, Variable costs $2m, Attributable fixed costs $500,000, Central allocated overhead $300,000. What is the divisional contribution, and should the central allocated overhead be included in divisional performance evaluation?
Select an option first.
Correct answer: B — $1,000,000 contribution; central allocated overheads should be excluded from performance evaluation because they are not controllable by the divisional manager — include only attributable costs
Explanation: Contribution = $3m − $2m = $1m. Controllable profit = $1m − $500,000 = $500,000. Central overhead ($300,000) is allocated by head office — outside the divisional manager's control. Including it would make the measure unfair. A and D include non-controllable items; C is wrong calculation.
Question 210
A company achieves a throughput of $1,200,000, with total operating expense (excluding materials) of $900,000 and inventory of $200,000. Calculate the net profit under throughput accounting.
Select an option first.
Correct answer: A — $300,000
Explanation: Net profit = Throughput − Operating Expenses = $1,200,000 − $900,000 = $300,000. Inventory does not affect the income calculation in throughput accounting. B deducts inventory; C and D are wrong.
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Strategic Business Reporting400
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Taxation300
Audit and Assurance300
Strategic Business Leader300
Advanced Audit and Assurance296
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