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Free ACCA Management Accounting Practice Questions & Answers
400 exam-style Management Accounting questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 271
Beyond Budgeting advocates replacing annual budgets with:
Select an option first.
Correct answer: B — Relative performance targets and rolling forecasts that adapt to changing conditions
Explanation: B is correct: Beyond Budgeting replaces the rigid annual budget with continuous rolling forecasts, benchmarked relative performance targets (e.g. beating competitors rather than a fixed plan), and greater devolved decision-making — enabling faster adaptation to change. A is wrong — more detail in shorter cycles is still traditional budgeting. C is wrong — one five-year plan without updates is inflexible. D is wrong — prior year figures is incremental budgeting.
Question 272
Capital allowances in investment appraisal affect tax calculations because:
Select an option first.
Correct answer: B — They are a form of tax depreciation that reduces taxable profit, thereby reducing tax payments and improving project cash flows
Explanation: B is correct: capital allowances (tax-allowable depreciation) reduce taxable profit in the year they are claimed, reducing the tax payable. This tax saving is a real cash inflow benefit of investing in qualifying assets, improving NPV. A is wrong — capital allowances reduce, not increase, tax. C is wrong — they are a deduction from taxable profit, not income. D is wrong — they do not affect project timing.
Question 273
In the context of performance management, 'controllability principle' means:
Select an option first.
Correct answer: B — Managers should only be held accountable for items within their control
Explanation: B is correct: the controllability principle is fundamental to fair performance assessment — charging managers with costs or revenues outside their control distorts the picture and demotivates. Only items the manager can genuinely influence should appear in their performance report. A is wrong — minimising costs is an objective, not the controllability principle. C is wrong — central control is the opposite of divisional accountability. D is wrong — achievability relates to target-setting, not controllability.
Question 274
Which of the following is a characteristic of a good budgetary control system?
Select an option first.
Correct answer: C — Variances should be reported promptly, be clearly attributable to responsible managers and lead to corrective action
Explanation: C is correct: an effective budgetary control system provides timely, relevant variance information to the right people — enabling managers to act quickly on significant deviations. Prompt, attributable reporting and action are the hallmarks. A is wrong — unachievable budgets demotivate. B is wrong — detailed annual reports are too slow. D is wrong — costs should only be reported to managers who can control them.
Question 275
Return on Capital Employed (ROCE) is calculated as:
Select an option first.
Correct answer: B — Profit before interest and tax ÷ capital employed × 100
Explanation: B is correct: ROCE = PBIT / Capital Employed × 100. It measures how effectively management is generating profit from the total capital invested — both equity and debt. A is wrong — profit / revenue is the net profit margin. C is wrong — PAT / equity is Return on Equity (ROE). D is wrong — gross profit / non-current assets is not a standard ratio.
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Question 276
Capital employed is calculated as:
Select an option first.
Correct answer: B — Total assets minus current liabilities (or equity plus long-term debt)
Explanation: B is correct: capital employed = total assets - current liabilities = non-current assets + net current assets = equity + long-term borrowings. It represents the long-term funds used in the business. A is wrong — current assets minus current liabilities is net working capital. C is wrong — that is net profit. D is wrong — that is not a recognised formula.
Question 277
Return on Equity (ROE) measures:
Select an option first.
Correct answer: B — The profit generated for each dollar of shareholders' equity
Explanation: B is correct: ROE = net profit after tax / shareholders' equity × 100. It shows the return earned by shareholders on their invested capital. A is wrong — asset efficiency is measured by asset turnover or ROCE. C is wrong — dividends are not the same as ROE. D is wrong — that describes price-to-book ratio.
Question 278
A gross profit margin of 40% means:
Select an option first.
Correct answer: B — 40% of revenue remains after deducting cost of goods sold
Explanation: B is correct: gross profit margin = gross profit / revenue × 100. A 40% margin means for every $100 of sales, $40 is left after paying direct production costs, to cover overheads and generate profit. A is wrong — fixed cost proportion is unrelated. C is wrong — overhead coverage would be operating profit margin. D is wrong — that is a financial gearing ratio.
Question 279
The net profit margin is:
Select an option first.
Correct answer: C — Net profit after all expenses ÷ revenue × 100
Explanation: C is correct: net profit margin = net profit (after all operating costs, interest and sometimes tax) / revenue × 100. It shows the overall profitability efficiency of the business. A is wrong — gross profit / revenue is the gross margin. B is wrong — operating profit / total assets is a form of ROCE. D is wrong — sales / total assets is asset turnover.
Question 280
Asset turnover ratio is:
Select an option first.
Correct answer: A — Revenue ÷ capital employed
Explanation: A is correct: asset turnover = revenue / capital employed. It measures how efficiently the business generates revenue from each dollar of capital employed — more revenue per $1 of capital is better. B is wrong — profit / revenue is a margin ratio. C is wrong — current assets / current liabilities is the current ratio. D is wrong — that is inventory days.
Question 281
The DuPont analysis links ROCE to:
Select an option first.
Correct answer: B — Net profit margin × asset turnover
Explanation: B is correct: the DuPont decomposition shows ROCE = net profit margin × asset turnover = (profit/sales) × (sales/capital employed). This reveals whether ROCE changes are driven by margin improvements or by more efficient asset use. A is wrong — liquidity/solvency ratios are separate. C is wrong — DuPont uses net margin, not gross. D is wrong — dividend yield is an investor ratio.
Question 282
The current ratio measures:
Select an option first.
Correct answer: B — Short-term liquidity — the ability to meet obligations due within one year
Explanation: B is correct: current ratio = current assets / current liabilities. A ratio above 1 means the business has more short-term assets than short-term liabilities, indicating adequate short-term liquidity. A is wrong — long-term solvency is measured by gearing/leverage ratios. C is wrong — profitability relative to revenue is the profit margin. D is wrong — asset efficiency is measured by turnover ratios.
Question 283
The quick (acid test) ratio differs from the current ratio because it:
Select an option first.
Correct answer: B — Excludes inventory from current assets as inventory may not be quickly convertible to cash
Explanation: B is correct: quick ratio = (current assets - inventory) / current liabilities. Inventory is excluded because it may take time to sell and convert to cash, giving a stricter test of immediate liquidity. A is wrong — no profit measure is used. C is wrong — only current liabilities are in the denominator. D is wrong — calculation frequency does not define the ratio.
Question 284
A gearing ratio measures:
Select an option first.
Correct answer: B — The proportion of a company's financing that comes from debt relative to equity
Explanation: B is correct: financial gearing = long-term debt / (debt + equity) or similar formulations. High gearing means the company relies heavily on debt, increasing financial risk. A is wrong — that is a cost structure analysis. C is wrong — working capital efficiency is measured by debtor/creditor/inventory days. D is wrong — that is interest cover.
Question 285
Interest cover ratio is calculated as:
Select an option first.
Correct answer: A — Profit before interest and tax ÷ interest charges
Explanation: A is correct: interest cover = PBIT / interest expense. It shows how many times the company can cover its interest charges from operating profit. A ratio below 1 means the company cannot cover interest from operations. B is wrong — total debt / interest is not a meaningful ratio for coverage. C is wrong — revenue / debt is a different leverage measure. D is wrong — that is return on equity.
Question 286
Inventory days (or inventory holding period) is calculated as:
Select an option first.
Correct answer: C — Inventory ÷ cost of sales × 365
Explanation: C is correct: inventory days = (closing inventory / cost of sales) × 365. It shows how many days on average inventory is held before being sold — lower days generally indicate faster-moving stock. A is wrong — using revenue instead of cost of sales gives a distorted measure. B is wrong — revenue / inventory is inventory turnover based on revenue. D is wrong — cost of sales / inventory gives inventory turnover (times), not days.
Question 287
Receivables (debtor) days measures:
Select an option first.
Correct answer: B — How many days on average customers take to pay the company
Explanation: B is correct: receivable days = (trade receivables / revenue) × 365. A longer collection period means the business is waiting longer for cash from customers, potentially causing cash flow issues. A is wrong — payment to suppliers is measured by payable days. C is wrong — daily revenue is calculated differently. D is wrong — inventory days measures stock holding.
Question 288
Payables (creditor) days measures:
Select an option first.
Correct answer: B — How many days on average it takes the company to pay its suppliers
Explanation: B is correct: payable days = (trade payables / cost of sales or purchases) × 365. Longer payable days means the company takes more time to pay suppliers — using supplier credit to finance operations, which is beneficial up to a point. A is wrong — that is receivable days. C is wrong — tax liabilities are separate. D is wrong — that is a cost structure measure.
Question 289
Working capital is defined as:
Select an option first.
Correct answer: B — Current assets minus current liabilities
Explanation: B is correct: working capital = current assets - current liabilities. It represents the net short-term resources available to fund day-to-day operations. A is wrong — non-current assets minus liabilities is a different measure of net assets. C is wrong — working capital includes all current assets, not just cash. D is wrong — that would be a form of tangible net worth.
Question 290
The cash operating cycle (working capital cycle) represents:
Select an option first.
Correct answer: B — The time between paying for raw materials and receiving cash from customers for the finished goods
Explanation: B is correct: the cash cycle = inventory days + receivable days - payable days. It measures how long cash is tied up in the operating cycle before being recovered from customers. A is wrong — dividends are not part of the cash cycle. C is wrong — that is lead time. D is wrong — production is one component, not the entire cycle.
Question 291
Earnings Per Share (EPS) is calculated as:
Select an option first.
Correct answer: B — Profit attributable to ordinary shareholders ÷ weighted average number of ordinary shares
Explanation: B is correct: EPS = earnings attributable to ordinary shareholders / weighted average number of ordinary shares in issue. It measures the profit earned per share and is a key investor metric. A is wrong — total profit must be adjusted for preference dividends. C is wrong — that is the dividend payout ratio. D is wrong — that is the Price/Earnings ratio.
Question 292
The Price/Earnings (P/E) ratio tells investors:
Select an option first.
Correct answer: B — How many times earnings the market is prepared to pay for a share, reflecting growth expectations
Explanation: B is correct: P/E ratio = market price per share / EPS. A high P/E suggests the market expects strong future earnings growth. A low P/E may indicate undervaluation or a mature, slow-growing business. A is wrong — dividend yield = dividend per share / share price. C is wrong — total profit is not a per-share ratio. D is wrong — price movement is not captured by the P/E ratio.
Question 293
Residual Income (RI) is calculated as:
Select an option first.
Correct answer: B — Divisional profit minus (imputed interest rate × divisional net assets)
Explanation: B is correct: RI = divisional profit - (cost of capital × capital employed). It deducts a notional charge for the capital used, measuring economic profit. Positive RI means the division is earning above the required return. A is wrong — dividends do not define RI. C is wrong — that is contribution. D is wrong — PBIT less tax is net operating profit after tax.
Question 294
A key advantage of Residual Income over ROCE as a performance measure for divisions is:
Select an option first.
Correct answer: B — RI does not encourage managers to reject investments that would improve ROCE but fall below the existing divisional ROCE
Explanation: B is correct: if a division's ROCE is 20% and a new investment offers 15% return, the division manager using ROCE would reject it (it lowers their ratio). But if the cost of capital is 10%, the investment adds positive RI and should be accepted. RI avoids this goal incongruence. A is wrong — RI can be more complex. C is wrong — RI and ROCE are not comparable in magnitude. D is wrong — RI requires a cost of capital to compute.
Question 295
Economic Value Added (EVA) is most closely related to:
Select an option first.
Correct answer: B — Residual income — economic profit after deducting a charge for all capital employed (adjusted to economic values)
Explanation: B is correct: EVA, developed by Stern Stewart & Co, is a form of residual income that applies various accounting adjustments to convert accounting profit into an economic measure, and charges the full cost of all capital (debt and equity). A is wrong — payback ignores the cost of capital. C is wrong — gross margin does not account for capital cost. D is wrong — variances are operational control tools.
Question 296
Non-financial performance indicators (NFPIs) are important because:
Select an option first.
Correct answer: B — Financial measures alone are backward-looking and may miss drivers of future performance such as quality, customer satisfaction and innovation
Explanation: B is correct: NFPIs such as customer satisfaction scores, defect rates, employee turnover and on-time delivery capture dimensions of performance that financial metrics lag — they can predict future financial results. A is wrong — NFPIs supplement, not replace, financial information. C is wrong — NFPIs can also be manipulated. D is wrong — disclosure requirements vary by jurisdiction.
Question 297
Which of the following is an example of a non-financial performance indicator?
Select an option first.
Correct answer: C — Customer satisfaction rating
Explanation: C is correct: customer satisfaction rating is non-financial — it measures quality of service and relationship without reference to monetary amounts. A is wrong — ROCE is a financial ratio. B is wrong — gross margin is a financial ratio. D is wrong — EPS is a financial measure.
Question 298
The Balanced Scorecard was developed to:
Select an option first.
Correct answer: B — Provide a multi-dimensional framework linking strategy to operational performance across financial, customer, internal process and learning/growth perspectives
Explanation: B is correct: Kaplan and Norton's Balanced Scorecard recognises that financial measures alone give an incomplete picture of performance. It adds three non-financial perspectives to create a balanced view aligned to the organisation's strategy. A is wrong — financial perspective is one of the four, not replaced. C is wrong — variance analysis is unrelated. D is wrong — the scorecard explicitly counters the short-term financial bias.
Question 299
The four perspectives of the Balanced Scorecard are:
Select an option first.
Correct answer: B — Financial, customer, internal business processes, and learning and growth
Explanation: B is correct: Kaplan and Norton's four perspectives are: Financial (how do we look to shareholders?), Customer (how do customers see us?), Internal Business Processes (what must we excel at?), and Learning and Growth (can we continue to improve and create value?). A is wrong — strategic/tactical/operational is a planning hierarchy. C is wrong — those are business functions. D is wrong — those are financial statement elements.
Question 300
The internal business process perspective of the Balanced Scorecard focuses on:
Select an option first.
Correct answer: C — Operational processes that drive customer and financial outcomes — such as quality, speed and innovation
Explanation: C is correct: the internal process perspective asks 'what must we do exceptionally well operationally to satisfy customers and generate financial returns?' — covering production efficiency, quality management, cycle times and new product development. A is wrong — shareholder returns are in the financial perspective. B is wrong — customer loyalty is in the customer perspective. D is wrong — training is in learning and growth.
More free ACCA topics
Financial Accounting400
Corporate and Business Law400
Performance Management400
Financial Reporting400
Financial Management400
Strategic Business Reporting400
Advanced Financial Management400
Advanced Performance Management400
Advanced Taxation400
Business and Technology300
Taxation300
Audit and Assurance300
Strategic Business Leader300
Advanced Audit and Assurance296
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