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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 241
What is a 'variance analysis report' and who is it most useful for?
Select an option first.
Correct answer: B — A performance report summarising all significant variances from standard (or budget), categorised by type (price, volume, efficiency, mix) and responsibility centre — most useful for operational managers responsible for cost and revenue performance
Explanation: Variance analysis report: used by managers of cost and profit centres to understand why actual performance differed from plan, identify corrective actions, and learn for future planning. A, C and D are wrong.
Question 242
What is the difference between 'functional' and 'divisional' organisational structures in terms of performance management?
Select an option first.
Correct answer: B — Functional structure groups by activity (finance, marketing, operations) — performance measured by functional efficiency; divisional structure groups by product/market/geography — performance measured by divisional profit and ROI, enabling clearer P&L accountability
Explanation: Functional: functional KPIs (cost, efficiency). Divisional: profit/investment centre KPIs (ROI, RI, contribution). Divisionalisation enables P&L accountability but may create internal competition and transfer pricing complexity. A, C and D are wrong.
Question 243
What is 'outsourcing' and how does it affect performance management?
Select an option first.
Correct answer: B — Moving activities previously performed internally to an external provider — performance management must evolve to include supplier performance KPIs, contract compliance measures, and relationship management metrics
Explanation: Outsourcing changes the performance management focus: instead of managing internal costs and efficiency, the organisation manages external suppliers through KPIs, SLAs, and contract terms. A, C and D are wrong.
Question 244
What is a 'service level agreement' (SLA) in the context of performance management?
Select an option first.
Correct answer: B — A formal agreement between a service provider (internal or external) and its customers/users that specifies the performance standards (response time, quality, availability) the provider must meet — forming the basis for performance measurement
Explanation: SLAs: define expected service standards contractually. KPIs measure compliance. SLA breaches trigger penalties or corrective actions. Used in IT outsourcing, shared services, and supplier contracts. A, C and D are wrong.
Question 245
What is the 'net promoter score' (NPS)?
Select an option first.
Correct answer: B — A customer loyalty metric that measures the proportion of customers who would recommend the company (promoters) minus those who would not (detractors) — expressed as a score from -100 to +100
Explanation: NPS = % Promoters − % Detractors. Customers score likelihood to recommend 0-10. 9-10 = Promoters; 7-8 = Passive; 0-6 = Detractors. High NPS correlates with growth. A, C and D are wrong.
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Question 246
What is a 'budget holder' and what responsibilities does this role entail?
Select an option first.
Correct answer: B — A manager who has been given authority over a specific budget — responsible for managing expenditure (and revenue if applicable) within the approved budget, investigating significant variances, and reporting on performance
Explanation: Budget holder: any manager with budget responsibility — department head, project manager, divisional director. They are accountable for spending within their authority and for explaining deviations. A, C and D are wrong.
Question 247
What is the 'profit volume (PV) ratio' (or contribution to sales ratio, C/S ratio)?
Select an option first.
Correct answer: B — Contribution ÷ Sales revenue — the proportion of each unit of revenue that contributes to fixed costs and profit. Used to calculate break-even point (Fixed costs ÷ PV ratio) and target profit
Explanation: PV ratio = Contribution / Revenue. Break-even revenue = Fixed costs ÷ PV ratio. Revenue for target profit = (Fixed costs + Target profit) ÷ PV ratio. A, C and D are wrong formulas.
Question 248
What is an 'environmental impact assessment' in the context of management accounting?
Select an option first.
Correct answer: B — A systematic evaluation of the potential environmental impacts of a project, investment, or business decision — enabling management to quantify environmental costs and benefits and incorporate them into performance decisions
Explanation: EIA in management accounting: goes beyond legal compliance to quantify environmental externalities and embed them in investment appraisal, budgeting, and performance measurement. A, C and D are too narrow.
Question 249
What is the purpose of 'post-completion audit' (or post-implementation review) of capital projects?
Select an option first.
Correct answer: B — To review whether a completed project achieved its original objectives (costs, benefits, timelines) — learning lessons for future project appraisal and identifying whether corrective action is needed on underperforming investments
Explanation: Post-completion audit: compares actual vs. projected performance. Lessons learned improve future decision-making (more realistic forecasting, better risk assessment). It also creates accountability for capital allocation decisions. A, C and D are wrong.
Question 250
What is 'contribution per limiting factor' analysis and give an example?
Select an option first.
Correct answer: B — Ranking products by the contribution earned per unit of the scarce resource (e.g., per machine hour, per kg of material) to determine the optimal production mix when a bottleneck exists — e.g., if machine hours are limited, produce the product with the highest contribution per machine hour first
Explanation: Example: Product A: contribution $20, requires 2 machine hours → $10/hr. Product B: contribution $18, requires 1 machine hour → $18/hr. Rank: B first (higher $ per machine hour). C ranks by price (ignores cost); D ranks by total (ignores resource consumed). A is wrong.
Question 251
What is a 'transfer pricing dispute' and how can it be resolved?
Select an option first.
Correct answer: B — A conflict between divisions over the transfer price set for internal transactions — typically where the supplying division believes the price is too low (insufficient profit) or the buying division believes it is too high (inflated costs). Resolution: central arbitration, renegotiation, or adoption of a market-based or negotiated price
Explanation: TP disputes are common in divisionalised companies. The resolution approach should aim for: group-optimal transfer, fair division profit, and goal congruence. A, C and D are wrong.
Question 252
What is the significance of 'material costs' in a standard costing system?
Select an option first.
Correct answer: B — Material costs are typically the largest element of production cost — accurate standard setting for materials (quantity and price) is critical for meaningful variance analysis and cost control
Explanation: Material cost standards: cover standard price (purchasing efficiency) and standard quantity/yield (production efficiency). Together, material price and usage variances explain most of the total material cost variance. A and C are wrong; D is wrong (price is purchasing's responsibility).
Question 253
What is 'idle time' in the context of labour variance analysis?
Select an option first.
Correct answer: B — Unproductive time when workers are present but not producing (e.g., waiting for materials, machine breakdowns) — idle time reduces the hours available for production, creating an adverse variance and representing a pure cost with no output
Explanation: Idle time: Idle Time Variance = Idle hours × Standard rate (always adverse). It reduces effective labour capacity. Causes: material delays, machine failures, scheduling problems. A, C and D are wrong.
Question 254
What is the 'productivity ratio' in standard costing?
Select an option first.
Correct answer: B — Standard hours produced ÷ Actual hours worked × 100% — a measure of how efficiently the workforce used their time relative to the standard expectation
Explanation: Productivity ratio = Standard hours of actual output ÷ Actual hours worked × 100%. >100% = more productive than standard;
Question 255
What is an 'activity cost driver' and why is it important in ABC?
Select an option first.
Correct answer: B — The factor that causes (drives) the cost of an activity to be incurred — selecting the right cost driver is critical for accurate ABC because it determines how activity costs are allocated to products/services
Explanation: Cost driver selection in ABC: the driver must reflect the actual consumption of the activity. Wrong drivers distort product costs (e.g., using direct labour hours as the driver for a setup activity that is not related to labour hours). A, C and D are wrong.
Question 256
What is the 'return on sales' (ROS) formula?
Select an option first.
Correct answer: B — (Operating profit ÷ Revenue) × 100% — the percentage of each dollar of revenue that becomes operating profit, a measure of profitability and pricing/cost efficiency
Explanation: ROS (operating profit margin) = EBIT ÷ Revenue. A is asset turnover; C is return on equity (partial); D uses gross profit and total costs (wrong).
Question 257
In the context of divisional performance, what is 'controllable profit'?
Select an option first.
Correct answer: B — The profit a divisional manager can genuinely influence — revenues and costs within their authority, excluding allocated overheads from head office, financing costs set centrally, and other non-controllable items
Explanation: Controllable profit: managers should only be assessed on what they control. Head office allocated overheads, tax, and interest are typically outside divisional control. Including them distorts performance assessment and creates unfairness. A, C and D are wrong.
Question 258
What is the difference between 'profit maximisation' and 'shareholder wealth maximisation' as objectives?
Select an option first.
Correct answer: B — Profit maximisation focuses on short-term accounting profit; shareholder wealth maximisation focuses on the long-term present value of future cash flows — the latter is considered superior because it accounts for timing, risk, and the cost of capital
Explanation: Profit maximisation ignores: timing (a large future profit is worth less today), risk (higher risk reduces PV), and capital costs (accounting profit doesn't deduct the equity cost). Shareholder wealth maximisation captures all of these. A and C are wrong; D is backwards.
Question 259
What is 'full absorption costing' used for, and what is its main limitation for decision-making?
Select an option first.
Correct answer: B — Full absorption costing allocates all production overhead to products, giving a total product cost useful for inventory valuation and financial reporting — but the fixed overhead allocation is arbitrary and irrelevant to short-term decisions, where marginal cost is more appropriate
Explanation: Absorption costing: includes a fixed overhead absorption rate (FOAR) that depends on the predetermined absorption base and budgeted overhead. For short-run decisions (accept/reject, make/buy), fixed overheads are usually irrelevant. A, C and D are partial or wrong.
Question 260
What is the difference between a 'planning' and a 'control' function in management accounting?
Select an option first.
Correct answer: B — Planning involves setting objectives and defining the means to achieve them (budgets, forecasts, targets); control involves monitoring actual performance against the plan, identifying variances, and taking corrective action — both are essential parts of the management cycle
Explanation: The management accounting cycle: Plan → Do → Measure → Review → Act. Planning sets the direction; control ensures the direction is maintained. Both are equally essential. A, C and D are wrong.
Question 261
What is 'whole life costing' (or lifecycle cost management) and why is it important for capital investment decisions?
Select an option first.
Correct answer: B — Including all costs over an asset's entire life — acquisition, operation, maintenance, and disposal — to compare the true total cost of ownership rather than just the initial purchase price. Enables better investment comparisons between options with different operational cost profiles
Explanation: Whole life costing: a low-capital-cost option may have higher operating costs, making it more expensive in total. Comparing total lifecycle costs (discounted to PV) ensures the true cost is captured. A, C and D are wrong or too narrow.
Question 262
What are 'discretionary costs' and how are they managed in a performance management system?
Select an option first.
Correct answer: B — Costs that have no direct measurable relationship with output — such as advertising, R&D, and training — and are therefore set by management discretion rather than driven by a cost formula. Managed through negotiated budgets and value-based justification
Explanation: Discretionary costs: management sets the level based on strategic priorities, not output volume. They are difficult to evaluate because the link between input (spend) and output (benefit) is not direct or immediate. A, C and D are wrong.
Question 263
What is 'the Hawthorne effect' and what does it mean for performance management measurement?
Select an option first.
Correct answer: B — The observation that people change their behaviour when they know they are being observed or measured — in performance management, this means that introducing a new KPI may itself improve performance, but the improvement may not be sustainable when the measurement novelty wears off
Explanation: Hawthorne effect: observed at the Western Electric Hawthorne plant — workers improved performance simply because they were being studied. In PM: introducing new measures can temporarily improve performance through the attention effect. A, C and D are wrong (though C refers to the original Hawthorne study setting).
Question 264
What is a 'transfer pricing negotiation' and what principles should guide it?
Select an option first.
Correct answer: B — The process by which managers of supplying and receiving divisions agree on an internal transfer price — guided by principles of: fairness (reflecting each division's contribution), goal congruence (incentivising group-optimal decisions), and autonomy (preserving divisional management motivation)
Explanation: TP negotiation: the price must be acceptable to both divisions (otherwise one will refuse to trade or seek external options), reflect genuine resource costs and opportunity costs, and incentivise decisions that benefit the group as a whole. A, C and D are wrong.
Question 265
What is 'management information' and how does it differ from raw data?
Select an option first.
Correct answer: B — Data is unprocessed facts and figures; information is data that has been processed, organised, and contextualised to become meaningful and useful for decision-making
Explanation: Data → Processing → Information. Information has meaning and purpose for the receiver; raw data is just facts without context. A, C and D are wrong.
Question 266
What are the key qualities of good management information (often summarised as ACCURATE)?
Select an option first.
Correct answer: B — Accurate, Complete, Cost-effective (to produce), User-targeted, Relevant, Authoritative, Timely, Easy to use
Explanation: Good information qualities: accurate (free from error), complete (all relevant detail), cost-effective (benefit > cost of obtaining), user-targeted (appropriate to recipient), relevant (to the decision), authoritative (reliable source), timely (when needed), and easy to use. A, C and D are wrong or incomplete.
Question 267
What is a 'Management Information System' (MIS)?
Select an option first.
Correct answer: B — An integrated computer-based system that collects, processes, stores, and communicates information from multiple sources to support management decision-making at operational, tactical, and strategic levels
Explanation: An MIS provides information at all management levels — operational (daily transactions), tactical (short-term decisions), and strategic (long-term planning). A, C and D are too narrow.
Question 268
What is the difference between 'strategic information', 'tactical information', and 'operational information'?
Select an option first.
Correct answer: B — Strategic: long-term, highly aggregated, often external — for strategic decisions. Tactical: medium-term, summarised performance data — for planning and control decisions. Operational: short-term, detailed transaction-level data — for day-to-day operations
Explanation: Information needs differ by management level: strategic (horizon: years, aggregated, qualitative + quantitative); tactical (months, summarised, internal + some external); operational (daily/weekly, detailed, internal). A, C and D are wrong.
Question 269
What is 'big data' and what are its defining characteristics?
Select an option first.
Correct answer: B — Datasets characterised by the '5 Vs': Volume (huge scale), Velocity (rapid generation), Variety (diverse formats), Veracity (variable quality/accuracy), and Value (potential insights) — so large and complex that traditional data processing tools cannot handle them
Explanation: Big data: the 5 Vs framework characterises data that requires specialist technologies (Hadoop, cloud computing) and analytics. A, C and D miss the defining characteristics.
Question 270
What is 'descriptive analytics'?
Select an option first.
Correct answer: B — Analytics that answers the question 'what has happened?' — using historical data to identify patterns, trends, and summaries of past performance
Explanation: Descriptive analytics: summarises historical data (dashboards, reports, KPIs). It describes the past but does not explain causes or predict the future. A is predictive; C is prescriptive; D is diagnostic.
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