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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 331
A company's receivable days have increased from 32 to 48 days. This might indicate:
Select an option first.
Correct answer: B — Credit control has deteriorated, customers are taking longer to pay, or credit terms have been relaxed
Explanation: B is correct: rising receivable days means customers are taking longer to pay, possibly because credit control is weak, credit terms were extended to attract customers, or there are disputes. It has cash flow implications. A is wrong — improving collection would reduce receivable days. C is wrong — sales change alone doesn't explain receivable days without knowing receivables balance. D is wrong — inventory management is a separate metric.
Question 332
A not-for-profit sports club wants to measure 'effectiveness'. A suitable measure would be:
Select an option first.
Correct answer: C — Percentage of members achieving their fitness or participation goals
Explanation: C is correct: effectiveness measures whether objectives are being achieved — for a sports club, this means whether members are actually meeting their goals, not just how cheaply or how many were served. A is wrong — cost per member measures economy or efficiency. B is wrong — members per budget unit is efficiency. D is wrong — a not-for-profit's goal is not profit generation.
Question 333
Internal benchmarking involves:
Select an option first.
Correct answer: B — Comparing performance of different units or divisions within the same organisation
Explanation: B is correct: internal benchmarking uses the organisation's own best-performing units as comparators — sharing practices between divisions or branches to spread best practice without the complexity of external data. A is wrong — comparing with industry leaders is competitive benchmarking. C is wrong — government statistics are external data. D is wrong — consultants may facilitate benchmarking but their involvement doesn't define it.
Question 334
Competitive benchmarking compares an organisation's performance against:
Select an option first.
Correct answer: B — The performance of best-in-class competitors or industry leaders
Explanation: B is correct: competitive benchmarking uses external reference points — specifically the best performers in the same or similar industries — to identify the performance gap and the practices that drive superior results. A is wrong — comparing against own prior results is trend analysis or historical benchmarking. C is wrong — budget comparison is variance analysis. D is wrong — comparing to a theoretical ideal is closer to ideal standards in costing.
Question 335
A divisional manager is evaluated using ROCE. The division currently earns ROCE of 20%. The company's required return is 14%. A proposed investment would earn 17% ROCE. What decision would a ROCE-focused manager likely make, and is it optimal?
Select an option first.
Correct answer: C — Reject — the 17% investment would reduce divisional ROCE from 20% to somewhere between 17% and 20%; this is suboptimal from a company perspective
Explanation: C is correct: the ROCE-focused manager sees the new investment diluting their 20% to, say, 19% — so they reject it to protect their metric. But the project earns 17%, well above the 14% required return, creating company value. This goal incongruence is a key failing of ROCE as a divisional measure. RI would encourage acceptance. A explains the theoretically correct decision from the company's view. C explains what the self-interested manager would actually do under ROCE. The question asks what the manager LIKELY does — C is the answer.
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Question 336
What does a positive EVA indicate for an organisation?
Select an option first.
Correct answer: B — The company earned a return greater than its cost of capital, creating economic value for shareholders
Explanation: B is correct: positive EVA means NOPAT exceeds the capital charge (WACC × capital employed), confirming the organisation created economic value — shareholders are better off than if they had invested elsewhere at the same risk. A is wrong — EVA applies to both levered and unlevered businesses. C is wrong — accounting profit cannot exceed revenue (by definition). D is wrong — dividend policy is not related to EVA sign.
Question 337
The 'strategy map' concept associated with the Balanced Scorecard shows:
Select an option first.
Correct answer: B — How objectives in the four BSC perspectives link causally — showing how learning and growth drives processes, which drives customer outcomes, which drives financial results
Explanation: B is correct: a strategy map is a visual representation of cause-and-effect relationships among BSC objectives — making the logic of the business model explicit and enabling managers to test strategic hypotheses. A is wrong — geography is not a BSC concept. C is wrong — budget flows are covered by the budgeting system. D is wrong — the organisation chart is a structural, not strategic, tool.
Question 338
Which of the following best describes a 'Key Performance Indicator' (KPI)?
Select an option first.
Correct answer: B — A quantifiable measure that evaluates the critical success factors of an organisation's strategy
Explanation: B is correct: KPIs are carefully selected metrics tied to the critical success factors — the specific things an organisation must do well to achieve its strategy. They are not all statistics but those that matter most. A is wrong — not every tracked metric is a KPI. C is wrong — KPIs are strategic, not just recent measures. D is wrong — KPIs include non-financial measures.
Question 339
When designing performance measures for a service organisation, which challenge is most significant?
Select an option first.
Correct answer: B — The intangible nature of services makes output quality harder to define and measure compared to manufactured goods
Explanation: B is correct: because services are intangible, heterogeneous and consumed simultaneously with production, measuring output quality and consistency is inherently more difficult than inspecting a physical product — making performance measurement more challenging. A is wrong — services typically have low material content. C is wrong — service organisations have many fixed costs (staff, premises). D is wrong — not all service markets are competitive.
Question 340
Which ratio would be most useful for assessing a company's ability to pay interest on its debt?
Select an option first.
Correct answer: C — Interest cover
Explanation: C is correct: interest cover = PBIT / interest expense. It directly measures how many times operating profit covers the interest obligation — a key indicator of financial risk for debt holders. A is wrong — asset turnover measures operational efficiency. B is wrong — current ratio measures short-term liquidity against all current liabilities, not specifically interest. D is wrong — inventory days measures stock management efficiency.
Question 341
In the context of divisional performance, 'goal congruence' problems arise when:
Select an option first.
Correct answer: B — Divisional managers make decisions that improve their own performance metric but are detrimental to the overall organisation
Explanation: B is correct: goal incongruence is when the incentives created by divisional performance measures cause managers to act in their own interest rather than the company's — the ROCE example (rejecting value-creating investments to protect ROCE) is the classic illustration. A is wrong — that describes goal congruence (the desired state). C is wrong — accounting consistency is separate. D is wrong — BSC typically improves goal congruence.
Question 342
Which of the following correctly identifies a leading indicator of performance?
Select an option first.
Correct answer: C — Customer satisfaction scores measured this quarter — which predict future purchasing behaviour
Explanation: C is correct: a leading indicator is forward-looking — it predicts future outcomes. Customer satisfaction today will drive future revenue and retention. Profit, revenue comparisons and write-offs are lagging indicators (they record what has already happened). A is wrong — last year's profit is lagging. B is wrong — year-on-year revenue is lagging. D is wrong — write-offs reflect past inventory decisions.
Question 343
A company operates in three segments: retail, wholesale and online. Which transfer pricing approach would be most straightforward to implement when there is a well-established external market price?
Select an option first.
Correct answer: C — Market-based transfer pricing
Explanation: C is correct: when an active external market exists for the transferred good or service, using the market price as the transfer price is straightforward, objective and avoids internal political negotiation — it also ensures the selling division earns what it could from external sales. A is wrong — cost-plus is used when no external market exists. B is wrong — negotiated prices are used when market prices are unavailable or divisions disagree. D is wrong — dual pricing (different prices for buyer and seller) is complex and obscures true divisional performance.
Question 344
Which of the following is a key criticism of the Balanced Scorecard?
Select an option first.
Correct answer: B — The causal links between perspectives are assumed, not empirically proven, and it can become a complex box-ticking exercise
Explanation: B is correct: while the BSC is influential, critics note that the assumed cause-and-effect chains (learning → process → customer → financial) are not always proven empirically. It can also become bureaucratic if too many measures are added. A is wrong — a key purpose of the BSC is to reduce over-reliance on financial measures. C is wrong — the BSC has been widely adopted across services, public sector and NFPs. D is wrong — customer satisfaction is one of the BSC's four core perspectives.
Question 345
A company's ROCE has fallen from 18% to 14%. Using DuPont analysis, which of the following would explain this?
Select an option first.
Correct answer: C — Both profit margin and asset turnover declined
Explanation: C is correct: ROCE = margin × asset turnover. A fall in ROCE must result from a decline in margin, asset turnover or both. If both deteriorated, ROCE falls — possibly due to competitive pressure reducing prices while the business grew its asset base without proportionate revenue. A is wrong — faster revenue growth would increase asset turnover and help ROCE. B is wrong — if margin rose but turnover fell sharply, ROCE might or might not fall depending on magnitude — but C is the clearest explanation of a straightforward fall. D is wrong — ROCE uses PBIT (pre-tax) so tax rates don't directly affect it.
Question 346
Which of the following performance ratios is most relevant for a company's trade creditors (suppliers)?
Select an option first.
Correct answer: C — Current ratio, quick ratio and payable days
Explanation: C is correct: trade creditors care about whether the company can pay its bills — liquidity ratios (current and quick) show short-term payment ability, and payable days show how long the company typically takes to pay. A is wrong — EPS and P/E are investor metrics. B is wrong — ROCE and net margin are more relevant to investors and management. D is wrong — dividends concern equity shareholders, not suppliers.
Question 347
Return on Investment (ROI) for a division is 18%. If the company's cost of capital is 12% and capital employed is $500,000, what is the residual income?
Select an option first.
Correct answer: C — $30,000
Explanation: C is correct: divisional profit = 18% × $500,000 = $90,000. Capital charge = 12% × $500,000 = $60,000. RI = $90,000 - $60,000 = $30,000. A is wrong — $90,000 is the divisional profit. B is wrong — $60,000 is the capital charge. D is wrong — $18,000 is not supported.
Question 348
A division has capital employed of $1,000,000 and RI of $40,000. The cost of capital is 8%. What is the division's ROCE?
Select an option first.
Correct answer: A — 12%
Explanation: A is correct: RI = Profit - (Cost of capital × Capital employed) → $40,000 = Profit - (8% × $1,000,000) → Profit = $40,000 + $80,000 = $120,000. ROCE = $120,000 / $1,000,000 = 12%. B is wrong — 4% doesn't satisfy the RI equation. C is wrong — 8% is the cost of capital, not ROCE. D is wrong — 40% would require $400,000 profit.
Question 349
Which of the following measures would be included in the customer perspective of a hotel's Balanced Scorecard?
Select an option first.
Correct answer: C — Guest satisfaction score and repeat booking rate
Explanation: C is correct: the customer perspective focuses on how well the hotel delivers value to guests — satisfaction scores and repeat bookings directly reflect customer experience and loyalty. A is wrong — RevPAR is a financial metric. B is wrong — cost per room is an internal efficiency/cost measure. D is wrong — training is learning and growth.
Question 350
Which of the following is a financial perspective measure in a Balanced Scorecard for a retailer?
Select an option first.
Correct answer: C — Same-store revenue growth and return on sales
Explanation: C is correct: same-store revenue growth and return on sales are financial outcomes — directly measuring profitability and top-line performance relevant to shareholders. A is wrong — customer complaints are customer perspective. B is wrong — absenteeism is learning and growth. D is wrong — restocking time is an internal process measure.
Question 351
What is the main risk of using non-financial performance indicators alongside financial ones?
Select an option first.
Correct answer: B — NFPIs can conflict with financial objectives; improving one measure may worsen another
Explanation: B is correct: there can be trade-offs between NFPIs and financial performance — for example, improving customer satisfaction by staffing more generously increases costs. Managers must balance competing objectives, and poorly designed NFPI systems can create perverse incentives. A is wrong — too many financial measures is a separate criticism. C is wrong — NFPIs can be manipulated but this is not the main risk of using them alongside financial measures. D is wrong — most NFPIs are tracked over time.
Question 352
The 'effectiveness' component of VfM in public sector means:
Select an option first.
Correct answer: C — Achieving the intended outcomes and objectives of the service
Explanation: C is correct: effectiveness asks whether the service actually achieves what it set out to do — not just whether it was cheap (economy) or productive (efficiency) but whether it made a real difference to service users. A is wrong — that is economy. B is wrong — that is efficiency. D is wrong — compliance is a governance issue.
Question 353
Which of the following is a potential drawback of benchmarking?
Select an option first.
Correct answer: B — Best practice identified may be context-specific and not directly transferable to a different organisation
Explanation: B is correct: a key limitation of benchmarking is that what works for one organisation in its specific context (culture, market, technology) may not transfer seamlessly to another — blind copying of best practice without understanding the underlying reasons can be ineffective or harmful. A is wrong — benchmarking is designed to challenge complacency, not encourage it. C is wrong — many benchmarks focus directly on customer satisfaction metrics. D is wrong — benchmarking can be done through simple metric comparison.
Question 354
Transfer pricing at marginal cost is most beneficial for the organisation as a whole when:
Select an option first.
Correct answer: B — The selling division has spare capacity — the buying division pays only the variable cost, maximising total group output
Explanation: B is correct: when the selling division has spare capacity, transferring at marginal cost maximises group profit — the buying division manufactures more cheaply than buying externally, generating total group contribution. The selling division's fixed costs are covered elsewhere. A is wrong — no spare capacity means opportunity cost should be added. C is wrong — relative divisional profit doesn't drive this decision. D is wrong — multi-jurisdiction transfer pricing is a tax minimisation strategy.
Question 355
Which of the following statements about ROI (ROCE) as a divisional performance measure is FALSE?
Select an option first.
Correct answer: C — It always aligns divisional managers' interests with those of the company
Explanation: C is correct (it is FALSE): ROCE frequently creates goal incongruence — a manager with a high ROCE will reject value-creating investments that would lower their ratio. So it does NOT always align interests. A is true — this is the classic ROCE problem. B is true — old, depreciated assets inflate ROCE. D is true — selling assets reduces the denominator and boosts ROCE artificially.
Question 356
Which of the following would reduce a company's receivable days?
Select an option first.
Correct answer: B — Implementing stricter credit control and offering early payment discounts
Explanation: B is correct: stricter credit control (chasing overdue accounts) and early payment discounts (incentivising customers to pay sooner) both reduce the average collection period, shortening receivable days. A is wrong — extended credit terms lengthen receivable days. C is wrong — selling price reduction affects revenue, not collection speed per se. D is wrong — inventory levels don't affect receivable days.
Question 357
A company's gross profit margin has declined from 45% to 38%. Which of the following is a likely cause?
Select an option first.
Correct answer: C — Cost of sales increased faster than revenue (e.g. raw material cost increases or selling price reductions)
Explanation: C is correct: gross profit margin = (revenue - cost of sales) / revenue. A falling margin means either revenue fell (price cuts, volume mix shift) or cost of sales rose (input cost inflation) without a compensating price increase. A is wrong — administration costs sit below gross profit and affect net margin. B is wrong — interest rates affect finance costs below gross profit. D is wrong — tax is below gross profit.
Question 358
Which ratio measures how long it takes a business to pay its suppliers?
Select an option first.
Correct answer: C — Payable days
Explanation: C is correct: payable days = (trade payables / cost of sales) × 365. It measures how many days on average the company takes to settle amounts owed to suppliers. A is wrong — receivable days measures customer payment. B is wrong — inventory days measures stock holding. D is wrong — current ratio measures short-term liquidity overall.
Question 359
A company's inventory days have risen from 35 to 52 days. Which of the following is NOT a likely explanation?
Select an option first.
Correct answer: C — Customers taking longer to pay
Explanation: C is correct (NOT a likely explanation): customers taking longer to pay affects receivable days, not inventory days. Inventory days is about how long stock sits in the warehouse before being sold — unrelated to customer payment behaviour. A is a possible cause. B is a possible cause. D is a possible cause.
Question 360
What does a high gearing ratio indicate about a company's financial risk?
Select an option first.
Correct answer: B — The company relies heavily on debt — higher financial risk due to mandatory interest payments and repayments
Explanation: B is correct: high gearing means more debt relative to equity. Debt obligates the company to pay interest and repay principal regardless of profitability — magnifying losses in downturns and increasing insolvency risk. A is wrong — heavy equity reliance is low gearing. C is wrong — gearing doesn't directly measure profitability. D is wrong — cash levels relate to liquidity, not gearing.
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