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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 301
The learning and growth perspective of the Balanced Scorecard covers:
Select an option first.
Correct answer: C — Employee skills, information systems capability, and organisational culture that enable improvement
Explanation: C is correct: learning and growth asks 'can we sustain our ability to change and improve?' — including workforce capability, IT infrastructure and organisational culture. It is the foundation that enables the other three perspectives. A is wrong — revenue growth is financial. B is wrong — on-time delivery is an internal process or customer metric. D is wrong — cost reduction is financial/internal process.
Question 302
Benchmarking involves:
Select an option first.
Correct answer: B — Comparing performance against best practice — from industry leaders or internal best-performing units
Explanation: B is correct: benchmarking systematically compares processes, costs and performance metrics against the best performers (internally, within the industry or across industries) to identify improvement opportunities. A is wrong — using only historical data is backwards-looking incremental analysis. C is wrong — the aim is to identify best practice, not simply average down. D is wrong — benchmarking often uses non-financial metrics prominently.
Question 303
If a division has PBIT of $300,000 and capital employed of $2,000,000, what is its ROCE?
Select an option first.
Correct answer: B — 15%
Explanation: B is correct: ROCE = $300,000 / $2,000,000 × 100 = 15%. A is wrong — 6.67% inverts the calculation. C is wrong — 20% would require $60,000 more profit. D is wrong — 66.7% is the reciprocal.
Question 304
A company has ROCE of 15% and net profit margin of 6%. What is the asset turnover?
Select an option first.
Correct answer: B — 2.5x
Explanation: B is correct: using DuPont: ROCE = margin × asset turnover → 15% = 6% × AT → AT = 15/6 = 2.5x. A is wrong — 90x is not calculated from these figures. C is wrong — 0.4 would mean ROCE = 6% × 0.4 = 2.4%. D is wrong — 10x would give ROCE = 60%.
Question 305
Residual income for a division is $50,000. Capital employed is $400,000 and the cost of capital is 10%. What is the divisional profit?
Select an option first.
Correct answer: B — $90,000
Explanation: B is correct: RI = profit - (capital × rate) → $50,000 = profit - ($400,000 × 10%) → profit = $50,000 + $40,000 = $90,000. A is wrong — $40,000 is the capital charge, not divisional profit. C is wrong — $50,000 is the RI, not the profit. D is wrong — $60,000 doesn't satisfy the equation.
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Question 306
A division reports ROCE of 25%. The company's cost of capital is 12%. Residual income is positive. Management considers a new project returning 18%. How should this be treated?
Select an option first.
Correct answer: B — Accepted — it earns above the cost of capital and generates positive RI, creating value
Explanation: B is correct: the project earns 18%, which is above the 12% cost of capital — so it will generate positive RI and increase company value. Rejecting it merely to protect a 25% divisional ROCE would be goal-incongruent with shareholder wealth maximisation. A is wrong — lowering ROCE to say 24% is still above the cost of capital and is value-creating. C is wrong — deferral loses value-creating time. D is wrong — it is very relevant.
Question 307
Value for Money (VfM) in public sector performance management refers to the 3 Es, which are:
Select an option first.
Correct answer: B — Economy, Efficiency and Effectiveness
Explanation: B is correct: the 3 Es of VfM in the public sector are Economy (minimising input costs), Efficiency (maximising output per unit of input) and Effectiveness (achieving intended outcomes). All three are needed for full VfM. A is wrong — earnings and equity are financial accounting terms. C is wrong — excellence and equity are not part of the standard VfM framework. D is wrong — those are not recognised VfM criteria.
Question 308
In a public sector context, 'efficiency' means:
Select an option first.
Correct answer: C — Getting the maximum output from a given level of input (or achieving a given output with minimal input)
Explanation: C is correct: efficiency is the relationship between inputs and outputs — doing more with the same, or the same with less. A is wrong — minimising spending describes economy. B is wrong — achieving goals describes effectiveness. D is wrong — low-cost inputs are economy.
Question 309
Transfer pricing is relevant when:
Select an option first.
Correct answer: B — One division of a company sells goods or services to another division of the same company
Explanation: B is correct: transfer pricing determines the internal price at which goods/services are transferred between divisions of the same organisation. It affects how profit is shared between divisions and each division manager's reported performance. A is wrong — external customer pricing is market pricing. C is wrong — import prices are external market prices. D is wrong — capital project appraisal is investment, not transfer pricing.
Question 310
What is the general rule for setting a minimum transfer price?
Select an option first.
Correct answer: C — Transfer price ≥ marginal cost of producing + any opportunity cost of the transfer (contribution foregone)
Explanation: C is correct: the minimum transfer price should at least compensate the selling division for the variable cost incurred and any contribution foregone from external sales displaced by the internal transfer (opportunity cost). A is wrong — variable cost alone may not compensate for lost external sales. B is wrong — market price is the maximum the buying division would pay; not a general minimum rule. D is wrong — full absorption cost is one possible basis but not the theoretical minimum.
Question 311
If a selling division has spare capacity, the minimum transfer price is:
Select an option first.
Correct answer: C — Marginal (variable) cost of production only, as there is no opportunity cost
Explanation: C is correct: when the selling division has excess capacity, transferring internally displaces no external sales, so there is no opportunity cost. The minimum acceptable price is just the marginal (variable) cost. A is wrong — the selling division doesn't need to charge full market price when it has spare capacity — any price above marginal cost generates contribution. B is wrong — full cost plus margin applies differently. D is wrong — zero would mean selling at a loss.
Question 312
The Balanced Scorecard's customer perspective measures might include:
Select an option first.
Correct answer: C — Market share, customer retention rate and customer satisfaction scores
Explanation: C is correct: customer perspective measures focus on how well the company delivers value to its customers — market share, retention, acquisition, satisfaction and customer profitability are typical measures. A is wrong — revenue and ROCE are financial perspective measures. B is wrong — employee metrics are learning and growth. D is wrong — cycle time and defects are internal process measures.
Question 313
Which of the following is a measure for the learning and growth perspective of the Balanced Scorecard?
Select an option first.
Correct answer: C — Employee training hours and skills development investment
Explanation: C is correct: learning and growth focuses on the organisation's capacity to improve — employee capability development (training hours, skills), information systems and culture are typical measures. A is wrong — return on investment is financial. B is wrong — complaint rates are customer perspective. D is wrong — on-time delivery is internal process or customer.
Question 314
Which of the following correctly describes 'economy' in the 3 Es framework?
Select an option first.
Correct answer: C — Obtaining resources of appropriate quality at the lowest possible cost
Explanation: C is correct: economy is about being 'frugal' with inputs — procuring the right quality resources at minimum cost. It does not concern what those resources then produce (that is efficiency and effectiveness). A is wrong — maximum output from inputs is efficiency. B is wrong — achieving objectives is effectiveness. D is wrong — fair allocation is equity, not economy.
Question 315
Which performance measure would be most useful for assessing a NOT-for-profit organisation?
Select an option first.
Correct answer: C — Cost per service unit delivered, quality outcomes and beneficiary satisfaction rates
Explanation: C is correct: not-for-profit organisations have no shareholders and no profit objective. Performance is assessed against service delivery objectives — cost efficiency per unit, quality of outcomes and stakeholder/beneficiary satisfaction. A is wrong — EPS and P/E are stock market investor ratios irrelevant to NFPs. B is wrong — ROCE and net margin require profit as a target. D is wrong — dividends and gearing relate to profit-distributing, debt-financed entities.
Question 316
Inventory turnover ratio is calculated as:
Select an option first.
Correct answer: B — Cost of sales ÷ average inventory
Explanation: B is correct: inventory turnover = cost of sales / average inventory. A higher number means inventory is being sold and replenished more rapidly, which is generally efficient. A is wrong — revenue / total assets is overall asset turnover. C is wrong — inventory / current liabilities is not a standard ratio. D is wrong — assets / revenue is the inverse of asset turnover.
Question 317
A business has revenue of $900,000 and debtors of $75,000. What are debtor days?
Select an option first.
Correct answer: B — 30.4 days
Explanation: B is correct: debtor days = ($75,000 / $900,000) × 365 = 0.0833 × 365 = 30.4 days. A is wrong — 12 is the receivables turnover ratio (times), not days. C is wrong — 12 times is a ratio, not days. D is wrong — 83 days overstates.
Question 318
The operating cash cycle can be shortened by:
Select an option first.
Correct answer: C — Reducing inventory days, reducing debtor days, or extending creditor days
Explanation: C is correct: cash cycle = inventory days + debtor days - creditor days. Shortening the cycle improves cash flow — sell inventory faster, collect from customers sooner, and take longer to pay suppliers. A is wrong — longer inventory days lengthen the cycle. B is wrong — slower customer collection lengthens the cycle. D is wrong — increasing all current liabilities has mixed effects and is not a targeted approach.
Question 319
Which of the following would indicate a company is OVER-TRADING?
Select an option first.
Correct answer: B — Rapidly growing sales but deteriorating liquidity, rising debtor days and falling working capital relative to sales
Explanation: B is correct: over-trading occurs when a business expands sales too rapidly without adequate working capital — characterised by rising receivables, stretched creditors, low or negative working capital and cash flow pressure despite growing revenue. A is wrong — high current ratio indicates strong liquidity, the opposite of over-trading. C is wrong — declining sales with high inventory describes over-stocking or poor sales performance. D is wrong — stable revenue with improving margins is healthy performance.
Question 320
A company's gearing ratio is 65%. This indicates:
Select an option first.
Correct answer: C — A high level of debt financing, which increases financial risk
Explanation: C is correct: a gearing ratio of 65% means 65% of the capital structure is debt. High gearing amplifies returns in good times but increases financial risk and the burden of interest obligations. A is wrong — revenue composition is unrelated to gearing. B is wrong — 65% equity would be low gearing (gearing measures debt, not equity). D is wrong — profit per dollar of equity is ROE.
Question 321
Which of the following is a potential problem with using ROCE as the sole performance measure for a division manager?
Select an option first.
Correct answer: B — ROCE can encourage managers to retain old, fully-depreciated assets rather than invest in new ones that would lower the ratio
Explanation: B is correct: old fully-depreciated assets have a low net book value, artificially inflating ROCE. A manager measured only on ROCE will resist replacing them with new assets (higher NBV = lower ROCE), even if the new investment creates value. A is wrong — ROCE is a simple ratio. C is wrong — ROCE includes revenue indirectly through profit. D is wrong — ROCE typically uses PBIT (pre-tax), but this doesn't cause the dysfunctional behaviour described.
Question 322
Economic Value Added (EVA) adjustments to accounting profit typically include:
Select an option first.
Correct answer: B — Capitalising R&D and brand development costs, adjusting for accounting provisions and adding back goodwill amortisation
Explanation: B is correct: EVA makes multiple adjustments to convert accounting profit to economic profit — capitalising expenses that create future value (R&D, marketing), removing conservative accounting provisions, and adding back goodwill amortisation — to reflect true economic performance. A is wrong — depreciation alone is insufficient. C is wrong — not all non-cash items are removed; some are converted, not eliminated. D is wrong — preference dividends are not the focus of EVA adjustments.
Question 323
A company has the following data: PBIT = $500,000; tax rate = 25%; capital employed = $3,000,000; WACC = 12%. Calculate EVA (simplified).
Select an option first.
Correct answer: B — $15,000
Explanation: B is correct: NOPAT = $500,000 × (1 - 0.25) = $375,000. Capital charge = $3,000,000 × 12% = $360,000. EVA = $375,000 - $360,000 = $15,000. A is wrong — $125,000 is the tax amount. C is wrong — $500,000 is PBIT. D is wrong — $375,000 is NOPAT, not EVA.
Question 324
A high P/E ratio generally suggests:
Select an option first.
Correct answer: B — Investors expect strong future earnings growth or the stock is considered low risk
Explanation: B is correct: a high P/E means investors pay more for each dollar of current earnings — typically because they expect high future growth or because the company is perceived as lower risk. A is wrong — low EPS alone doesn't cause a high P/E; the price-EPS relationship determines it. C is wrong — dividend policy is not directly reflected in P/E. D is wrong — high debt affects gearing ratios, not directly P/E.
Question 325
Which of the following is an argument AGAINST using a single financial measure like ROCE to assess managerial performance?
Select an option first.
Correct answer: C — It ignores quality, customer satisfaction, innovation and other drivers of long-term value
Explanation: C is correct: sole reliance on ROCE ignores the leading indicators of future financial performance — customer loyalty, product quality, employee capability and innovation. This can lead to short-termism. A is wrong — ROCE is easy to calculate. B is wrong — ROCE can be measured at any frequency. D is wrong — ROCE uses PBIT (before interest) by design, which is a deliberate choice, not a flaw.
Question 326
The concept of 'short-termism' in performance management refers to:
Select an option first.
Correct answer: B — Managers focusing on achieving near-term financial targets at the expense of long-term value creation
Explanation: B is correct: short-termism occurs when performance measurement systems incentivise managers to prioritise near-term profit (cutting R&D, deferring maintenance, reducing training) to hit targets, sacrificing long-term competitive capability and shareholder value. A is wrong — monthly targets alone do not define short-termism. C is wrong — budget frequency is not the issue. D is wrong — reporting frequency is unrelated.
Question 327
In a divisionalised company, where a division is evaluated using RI with a 10% cost of capital, a project earning 13% return would:
Select an option first.
Correct answer: B — Generate positive RI and should be accepted, adding value above the cost of capital
Explanation: B is correct: the project earns 13%, which exceeds the 10% cost of capital. RI = return - capital charge = 13% - 10% = positive. The project adds value and should be accepted. A is wrong — no 15% hurdle is specified; the hurdle is 10%. C is wrong — positive RI means positive excess return. D is wrong — a 13% return project clearly impacts divisional performance.
Question 328
Why might a manager manipulate accounting figures when performance is assessed by financial targets?
Select an option first.
Correct answer: C — To meet personal bonus targets or avoid poor performance ratings, even if this doesn't reflect real economic performance
Explanation: C is correct: when managers' rewards or career prospects depend on hitting financial metrics, they may engage in earnings management — deferring expenses, accelerating recognition of revenue — to hit targets, which is a significant limitation of purely financial KPI-based assessment. A is wrong — manipulation does not help auditors. B is wrong — tax minimisation is a separate, legal activity. D is wrong — manipulation typically violates accounting standards.
Question 329
The 'learning and growth' perspective in a Balanced Scorecard is described as the foundation because:
Select an option first.
Correct answer: B — It captures the human, informational and organisational capital that enables all other improvements
Explanation: B is correct: without the right people skills, systems and culture, the organisation cannot improve its processes (internal), which means it cannot delight customers (customer), which means it cannot generate financial returns (financial). Learning and growth is the root enabler. A is wrong — it is primarily non-financial. C is wrong — customer satisfaction is a customer perspective measure. D is wrong — budgeting is not a BSC function.
Question 330
Which problem does the Balanced Scorecard specifically address compared to purely financial reporting?
Select an option first.
Correct answer: B — It balances short-term financial measures with leading, non-financial indicators of future performance
Explanation: B is correct: the BSC was designed explicitly to counter the short-termism and incomplete picture provided by purely financial measures, by adding customer, process and learning perspectives that are leading indicators of future financial health. A is wrong — the BSC does not affect financial statement preparation time. C is wrong — external audit is separate. D is wrong — variance analysis is not part of the BSC.
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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