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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 361
Which of the following is an internal process perspective measure for a hospital?
Select an option first.
Correct answer: C — Average length of patient stay and infection rates within the hospital
Explanation: C is correct: average length of stay and infection control rates are internal process measures — they reflect the efficiency and quality of clinical processes managed internally, driving patient outcomes and costs. A is wrong — patient satisfaction is a customer (patient) perspective. B is wrong — training hours are learning and growth. D is wrong — funding is more of a financial/resource measure.
Question 362
If a company's EVA is consistently negative, what does this suggest?
Select an option first.
Correct answer: B — The company is destroying economic value — earning less than its cost of capital
Explanation: B is correct: negative EVA means the company earns less than it costs to finance its operations. Even if accounting profit is positive, the company is destroying shareholder value relative to the returns available elsewhere at the same risk. A is wrong — EVA can be negative even with positive accounting profit. C is wrong — capital structure doesn't directly cause negative EVA. D is wrong — EVA is not a cash measure.
Question 363
A strategy of 'operational excellence' in the Balanced Scorecard's internal process perspective would be best measured by:
Select an option first.
Correct answer: C — Process defect rate, cost per transaction, and cycle time reduction
Explanation: C is correct: operational excellence focuses on delivering products and services efficiently and reliably — defect rates, unit transaction costs and time-to-complete are the natural internal process KPIs for this strategic theme. A is wrong — market share is a customer or financial metric. B is wrong — employee engagement is learning and growth. D is wrong — new product revenue is innovation-related.
Question 364
The 'three Cs' framework for transfer pricing states the transfer price should consider:
Select an option first.
Correct answer: A — Cost, Competition, and Customers
Explanation: A is correct: a widely cited framework for evaluating transfer prices considers: Cost (ensuring the selling division covers its costs), Competition (market prices provide an external reference), and Customers (the impact on the final customer and overall profitability). B is wrong — the three Cs in transfer pricing are not these. C is wrong — while sensible, this is not the recognised 'three Cs'. D is wrong — those are general financial concepts.
Question 365
A business has: Total assets $2,000,000; Current liabilities $400,000; Revenue $3,000,000; Net profit $180,000. Calculate ROCE.
Select an option first.
Correct answer: B — 11.25%
Explanation: B is correct: capital employed = total assets - current liabilities = $2,000,000 - $400,000 = $1,600,000. ROCE = $180,000 / $1,600,000 × 100 = 11.25%. A is wrong — 9% = $180,000 / $2,000,000 (ignores deducting current liabilities). C is wrong — 15% = $180,000 / $1,200,000 which uses wrong capital figure. D is wrong — 6% is not supported.
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Question 366
A company has: Gross profit $600,000; Revenue $1,500,000; Net profit $150,000. What is the net profit margin?
Select an option first.
Correct answer: B — 10%
Explanation: B is correct: net profit margin = $150,000 / $1,500,000 × 100 = 10%. A is wrong — 40% is the gross profit margin ($600,000 / $1,500,000). C is wrong — 25% is not supported. D is wrong — 4% is not supported.
Question 367
An organisation's quick ratio is 0.8. What does this indicate?
Select an option first.
Correct answer: B — For every $1 of current liabilities, there is only $0.80 of liquid assets — potential short-term liquidity risk
Explanation: B is correct: a quick ratio below 1 means the business cannot fully cover its current liabilities with liquid assets (excluding inventory). This may signal a risk of liquidity difficulties, though context matters (e.g. if cash flow is strong). A is wrong — below 1 is typically a warning signal. C is wrong — inventory turnover is a separate ratio. D is wrong — gearing is a separate capital structure measure.
Question 368
Which of the following performance measures relates to the LEARNING AND GROWTH perspective of the BSC for a professional services firm?
Select an option first.
Correct answer: C — Hours of CPD training per professional staff member
Explanation: C is correct: continuing professional development (CPD) hours per staff member is a direct learning and growth measure — it tracks whether the firm is investing in building its human capital and knowledge, which underpins future service quality. A is wrong — client satisfaction is customer perspective. B is wrong — revenue per partner is financial. D is wrong — project profitability is financial/internal process.
Question 369
A limitation of ROI/ROCE as a divisional performance measure is that:
Select an option first.
Correct answer: B — It is a relative measure that can favour smaller divisions with higher ratios over larger divisions creating more absolute value
Explanation: B is correct: a small division with a 25% ROCE looks better than a large division with 20% ROCE, even if the large division generates five times the profit in absolute terms. RI and EVA avoid this by measuring absolute value creation. A is wrong — ROCE is straightforward to compute. C is wrong — ROCE is purely financial. D is wrong — ROCE is commonly used for inter-divisional comparison.
Question 370
Which of the following best describes a 'Critical Success Factor' (CSF)?
Select an option first.
Correct answer: B — The things the organisation must do exceptionally well in order to achieve its strategic objectives
Explanation: B is correct: CSFs are the small number of key areas where performance must be excellent for the strategy to succeed — they link directly to KPIs which measure how well those critical areas are performing. A is wrong — opportunities are part of strategic analysis but not CSFs. C is wrong — financial targets are budget-level specifics. D is wrong — threats are risk factors.
Question 371
In divisional reporting, which of the following is an example of a controllable profit?
Select an option first.
Correct answer: C — Profit after deducting all costs directly controlled by the divisional manager, before any allocated head office charges
Explanation: C is correct: controllable profit represents the profit generated by the division after only the costs within the manager's authority are charged — uncontrollable allocations (head office overhead, group charges) are excluded to give a fair performance measure. A is wrong — including allocated head office costs makes the measure partly uncontrollable. B is wrong — no cost deduction is not a profit measure. D is wrong — inventory method doesn't define controllable profit.
Question 372
A company sells 10,000 units at $50 each. Cost of sales is $30/unit. Operating expenses total $80,000. What is the operating profit margin?
Select an option first.
Correct answer: B — 24%
Explanation: B is correct: revenue = $500,000. Gross profit = $200,000 (40% margin). Operating profit = $200,000 - $80,000 = $120,000. Operating margin = $120,000 / $500,000 = 24%. A is wrong — 40% is the gross profit margin. C is wrong — 60% is not supported. D is wrong — 16% is not supported.
Question 373
A division reports: Revenue $2m; Direct costs $1.4m; Directly attributable fixed costs $200,000; Allocated head office costs $150,000. What is the divisional controllable profit?
Select an option first.
Correct answer: B — $400,000
Explanation: B is correct: controllable profit = revenue - direct costs - directly attributable fixed costs = $2,000,000 - $1,400,000 - $200,000 = $400,000. Allocated head office costs are uncontrollable and excluded. A is wrong — $250,000 deducts the head office allocation too. C is wrong — $600,000 = revenue - direct costs only. D is wrong — $100,000 is not supported.
Question 374
Which of the following is a purpose of transfer pricing within a group of companies?
Select an option first.
Correct answer: B — To fairly measure divisional performance by pricing internal transactions and, in multinationals, to manage tax efficiently
Explanation: B is correct: transfer prices serve two main purposes — enabling fair divisional performance assessment (each division should see a realistic profit) and, in international groups, influencing in which jurisdiction taxable profit arises (tax efficiency). A is wrong — transfer pricing is not designed to eliminate divisional profit. C is wrong — external prices are set by market forces. D is wrong — overhead allocation is a different mechanism.
Question 375
What is the effect on group profit if a transfer is made above market price from Division A to Division B within the same company?
Select an option first.
Correct answer: C — Group profit is unchanged — internal profits cancel on consolidation
Explanation: C is correct: for the group as a whole, internal transactions cancel out on consolidation — A's profit on the transfer equals B's extra cost, so group profit is unchanged. Transfer pricing only affects the split of profit between divisions, not total group profit. A is wrong — group profit is unaffected. B is wrong — group profit is not reduced. D is wrong — B pays more cost, reducing B's profit by the same amount A gains.
Question 376
Throughput contribution is defined as:
Select an option first.
Correct answer: B — Revenue minus the cost of direct materials only
Explanation: B is correct: in throughput accounting, throughput = sales revenue minus direct material cost only. Labour and overhead are treated as operating expenses (period costs). This is different from marginal costing contribution which deducts all variable costs. A is wrong — deducting all variable costs is marginal costing contribution. C is wrong — gross profit minus overheads is operating profit. D is wrong — revenue minus fixed costs is not a recognised standard definition.
Question 377
The return on equity (ROE) is most relevant to which group of stakeholders?
Select an option first.
Correct answer: C — Equity shareholders
Explanation: C is correct: ROE = profit after tax / shareholders' equity. It directly measures the return earned on equity investors' stake — the metric most relevant to ordinary shareholders assessing whether management is creating value on their behalf. A is wrong — suppliers focus on liquidity and creditworthiness. B is wrong — employees focus on job security and wages. D is wrong — regulators focus on compliance and market conduct.
Question 378
A balanced scorecard that has too many KPIs risks:
Select an option first.
Correct answer: B — Overwhelming managers with data, diluting focus and making it hard to prioritise
Explanation: B is correct: one of the most common implementation failures of the BSC is metric proliferation — adding too many measures dilutes the focus on what truly matters, making the scorecard unwieldy and hard to act on. Best practice is typically 4-6 KPIs per perspective. A is wrong — too many KPIs is complex, not simple. C is wrong — the financial perspective is typically well-populated. D is wrong — short-termism relates to the types of metrics chosen, not their number.
Question 379
In measuring the performance of a cost centre, which of the following is MOST appropriate?
Select an option first.
Correct answer: C — Variance analysis comparing actual costs to budgeted or standard costs
Explanation: C is correct: a cost centre manager is responsible only for costs — variance analysis (comparing actual vs budgeted/standard cost) is the natural performance tool, highlighting where costs were controlled and where they deviated. A is wrong — ROCE requires both profit and capital, not appropriate for a cost centre. B is wrong — net margin requires revenue, which cost centres don't have. D is wrong — ROE is for equity investors.
Question 380
If a company's asset turnover increases from 1.5x to 2.0x and its net profit margin stays the same, what happens to ROCE?
Select an option first.
Correct answer: C — ROCE increases
Explanation: C is correct: ROCE = margin × asset turnover. If margin is unchanged and asset turnover improves (more revenue generated per dollar of capital), ROCE increases proportionally — from margin × 1.5 to margin × 2.0. A is wrong — higher asset turnover raises ROCE. B is wrong — ROCE changes when asset turnover changes. D is wrong — no basis for a negative result.
Question 381
A public sector school is assessed on VfM. Which measure relates to 'efficiency'?
Select an option first.
Correct answer: C — The number of students taught per teacher
Explanation: C is correct: students per teacher is an efficiency measure — it shows the output (students taught) relative to a key input (teaching staff). More students per teacher (within quality limits) means more efficient use of resources. A is wrong — grades are an effectiveness measure (achieving intended outcomes). B is wrong — cost per pupil is an economy or efficiency measure depending on framing; without linking to output, it leans economy. D is wrong — total budget spent is a measure of economy or input, not efficiency.
Question 382
What is the working capital cycle (cash operating cycle) for a company with: inventory days 45, receivable days 30, payable days 25?
Select an option first.
Correct answer: B — 50 days
Explanation: B is correct: working capital cycle = inventory days + receivable days - payable days = 45 + 30 - 25 = 50 days. This is how long cash is tied up before it is recovered from customers. A is wrong — 100 days ignores payable days. C is wrong — 75 days = 45 + 30. D is wrong — 20 days is not supported.
Question 383
Which of the following would be a 'leading indicator' of future sales revenue?
Select an option first.
Correct answer: C — Number of new customer contracts signed this month
Explanation: C is correct: new customer contracts signed now are a leading indicator — they will generate future revenue. All other options are lagging (they record what has already happened). A is wrong — last quarter is lagging. B is wrong — current profit is lagging (based on completed activity). D is wrong — last year's market share is lagging.
Question 384
A company has: Net profit $250,000; Revenue $2,500,000; Total assets $2,000,000; Current liabilities $500,000. Calculate asset turnover and net profit margin, then find ROCE.
Select an option first.
Correct answer: B — ROCE = 16.67%
Explanation: B is correct: Capital employed = $2,000,000 - $500,000 = $1,500,000. Asset turnover = $2,500,000 / $1,500,000 = 1.67x. Net profit margin = $250,000 / $2,500,000 = 10%. ROCE = 10% × 1.67 = 16.67% (or directly: $250,000 / $1,500,000 = 16.67%). A is wrong — 12.5% = $250,000 / $2,000,000 (wrong capital employed). C is wrong — 10% is the profit margin, not ROCE. D is wrong — 20% would require different figures.
Question 385
What is the main purpose of a 'strategy map' in the context of the Balanced Scorecard?
Select an option first.
Correct answer: B — To illustrate the cause-and-effect relationships between objectives across the four BSC perspectives
Explanation: B is correct: a strategy map visually connects BSC objectives — showing, for example, how investing in employee skills (learning & growth) improves process quality (internal), which increases customer satisfaction (customer), which drives revenue and profit (financial). A is wrong — geography is unrelated. C is wrong — financial reporting is separate. D is wrong — a ranked KPI list is not a strategy map.
Question 386
If Division X has a current ROCE of 22%, the company's cost of capital is 15%, and a new project would earn 19% return, which performance measure would lead to the correct decision to ACCEPT?
Select an option first.
Correct answer: B — Residual income — since 19% exceeds the 15% cost of capital, RI is positive
Explanation: B is correct: RI analysis: project earns 19%, cost of capital 15% → positive RI → accept. The manager using RI will accept the project because it creates value above the hurdle rate. The ROCE-focused manager (option C) would reject it for lowering their 22% to approximately 21%, creating goal incongruence — demonstrating RI's superiority in this context. A is wrong — ROCE compares project return to divisional ROCE, not cost of capital. C is wrong — rejecting a value-creating project is the dysfunctional ROCE outcome. D is wrong — RI gives a clear accept signal.
Question 387
Sensitivity analysis (for a capital project with NPV = $25,000 and total PV of all costs = $500,000) gives a sensitivity to costs of:
Select an option first.
Correct answer: B — 5%
Explanation: B is correct: sensitivity = NPV / PV of relevant item = $25,000 / $500,000 = 5%. Costs can increase by 5% before the NPV turns zero. A is wrong — 2% would require $50,000 NPV vs $1,000,000 PV. C is wrong — 20% would require $100,000 NPV. D is wrong — 50% is unsupported.
Question 388
Which of the following is NOT part of the definition of the Balanced Scorecard?
Select an option first.
Correct answer: D — It is used exclusively in manufacturing companies
Explanation: D is correct (NOT part of the definition): the BSC was explicitly designed to be applicable across all types of organisations — manufacturing, service, public sector, not-for-profit. Exclusivity to manufacturing is false. A is correct — financial is one of the four perspectives. B is correct — Kaplan and Norton developed it in the early 1990s. C is correct — the four-perspective structure is fundamental.
Question 389
Functional benchmarking compares processes against:
Select an option first.
Correct answer: C — Best-in-class organisations from any industry for a specific function (e.g. logistics, HR)
Explanation: C is correct: functional benchmarking looks outside the industry — seeking the organisation that does a particular function (e.g. order fulfilment, recruitment) better than anyone else, regardless of sector, to identify transferable best practices. A is wrong — comparing direct competitors is competitive benchmarking. B is wrong — own history is historic/internal benchmarking. D is wrong — zero-defect ideal is a quality standard concept.
Question 390
A company calculates EVA as follows: PBIT = $800,000; tax = 25%; total capital employed = $4,000,000; WACC = 14%. What is the EVA?
Select an option first.
Correct answer: C — $40,000
Explanation: C is correct: NOPAT = $800,000 × (1 − 0.25) = $600,000. Capital charge = $4,000,000 × 14% = $560,000. EVA = $600,000 − $560,000 = $40,000. A is wrong — $200,000 is the tax amount. B is wrong — $600,000 is NOPAT. D is wrong — $160,000 is not supported.
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