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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 181
What is the purpose of reconciling budgeted profit to actual profit through variance analysis?
Select an option first.
Correct answer: B — To explain in detail why actual profit differs from budgeted profit using individual variances
Explanation: B is correct: the operating statement (reconciliation) works from budgeted profit, adds favourable variances and deducts adverse variances to arrive at actual profit — showing management exactly what caused the deviation. A is wrong — variance analysis is backward-looking; future budgets use this insight but it is not the purpose of reconciliation. C is wrong — tax is unrelated. D is wrong — competitor comparison is benchmarking.
Question 182
In a standard costing system, which variance arises when a company buys materials in bulk at a discount, getting a favourable price variance but using more material than standard (adverse usage)?
Select an option first.
Correct answer: B — Both price and usage variances — they may partially offset each other
Explanation: B is correct: buying in bulk at a discount drives a favourable price variance, but bulk buying can lead to quality issues or over-ordering, causing adverse usage. Both variances are real and should be analysed — the purchasing decision may explain both. A is wrong — volume variance relates to production output vs budget. C is wrong — only reporting total variance hides the interplay. D is wrong — idle time is a labour concept.
Question 183
A company budgets to sell 5,000 units but actually sells 4,500 units. The standard contribution is $10/unit. What is the sales volume contribution variance?
Select an option first.
Correct answer: C — $5,000 adverse
Explanation: C is correct: sales volume contribution variance = (actual sales units - budgeted sales units) × standard contribution = (4,500 - 5,000) × $10 = -$5,000 = $5,000 adverse. A is wrong — the variance is adverse, not favourable. B is wrong — $45,000 is the actual contribution, not the variance. D is wrong — $50,000 is the budgeted contribution.
Question 184
The sales price variance is calculated as:
Select an option first.
Correct answer: A — (Actual price - standard price) × actual units sold
Explanation: A is correct: the sales price variance = (actual selling price - standard selling price) × actual units sold. It isolates the effect of price changes from volume changes. B is wrong — that is volume-related, not price. C is wrong — total revenue difference includes both price and volume effects. D is wrong — using budgeted units does not reflect actual sales activity.
Question 185
Responsibility accounting requires that managers are only judged on:
Select an option first.
Correct answer: B — Costs and revenues they have direct control over
Explanation: B is correct: responsibility accounting holds each manager accountable only for the items within their authority to control — uncontrollable costs and revenues allocated to a centre should not affect a manager's performance appraisal. A is wrong — total organisational costs includes many items outside a manager's control. C is wrong — other departments' results are clearly outside the manager's control. D is wrong — board-level investment decisions are not within most managers' authority.
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Question 186
A company's flexible budget shows variable costs of $15/unit and fixed costs of $80,000. Actual production was 6,000 units. What should the flexed budget cost be?
Select an option first.
Correct answer: C — $170,000
Explanation: C is correct: flexed budget total cost = (6,000 × $15) + $80,000 = $90,000 + $80,000 = $170,000. A is wrong — $80,000 is only fixed costs. B is wrong — $90,000 is only variable costs. D is wrong — $150,000 does not match the formula.
Question 187
Which of the following is a behavioural advantage of participative budgeting?
Select an option first.
Correct answer: B — It improves motivation as managers are committed to budgets they helped set
Explanation: B is correct: when managers participate in setting their own budget, they feel ownership and are more committed to achieving it — improving motivation and the quality of information in the budget. A is wrong — participative budgeting is usually slower due to consultation. C is wrong — it can actually increase the risk of slack. D is wrong — it can result in higher budgets due to slack.
Question 188
The production volume ratio (or activity ratio) compares:
Select an option first.
Correct answer: B — Standard hours for actual output to budgeted hours
Explanation: B is correct: activity/production volume ratio = (standard hours for actual production / budgeted hours) × 100. It shows whether production volume was higher or lower than planned. A is wrong — that is the efficiency ratio. C is wrong — cost comparison is variance analysis. D is wrong — that describes the relationship between efficiency and capacity ratios.
Question 189
Which variance CANNOT be sub-divided into price and efficiency components?
Select an option first.
Correct answer: C — Fixed overhead expenditure variance
Explanation: C is correct: the fixed overhead expenditure variance (budgeted FO minus actual FO) is a single variance that cannot be split into price and efficiency because fixed overheads do not change with activity. A is wrong — labour variance splits into rate (price) and efficiency. B is wrong — material variance splits into price and usage (efficiency). D is wrong — variable overhead variance splits into expenditure and efficiency.
Question 190
Budget bias (budgetary slack) is most likely to occur under which budgeting system?
Select an option first.
Correct answer: C — Participative (bottom-up) budgeting
Explanation: C is correct: participative budgeting gives managers the opportunity to build in slack — understating revenue or overstating costs — to make their targets easier. Top-down budgets are set by senior management and are more difficult to manipulate. A is wrong — imposed budgets leave less room for subordinate manipulation. B is wrong — ABB focuses on activities and drivers, which constrain slack. D is wrong — ZBB requires detailed justification, making it harder to hide slack.
Question 191
Activity-based budgeting (ABB) sets budgets based on:
Select an option first.
Correct answer: B — Expected activity volumes and the cost drivers associated with each activity
Explanation: B is correct: ABB uses the ABC framework — it identifies the activities required, estimates the volume of each activity's cost driver, and budgets accordingly. It links resource consumption directly to planned activities. A is wrong — that is incremental budgeting. C is wrong — that is top-down budgeting. D is wrong — ABB covers all costs.
Question 192
A cash budget shows an overdraft of $15,000 in March. What does this tell management?
Select an option first.
Correct answer: B — The business will need short-term finance or must adjust payment timing to cover the cash shortfall in March
Explanation: B is correct: a cash overdraft in the budget is an advance warning — management can proactively arrange a bank overdraft facility, delay capital expenditure, speed up debtor collections, or slow creditor payments to address the shortfall. A is wrong — a cash deficit does not equal an accounting loss (timing differences cause them to differ). C is wrong — the overdraft is a cash position, not a budget overspend indicator. D is wrong — fixed cost levels cannot be read from a cash overdraft alone.
Question 193
Capital expenditure (CapEx) budgeting involves:
Select an option first.
Correct answer: B — Planning for the acquisition of long-term assets such as machinery, property and IT systems
Explanation: B is correct: CapEx budgets plan and authorise spending on non-current assets — the investments that generate productive capacity and value over multiple years. A is wrong — day-to-day spending is revenue (OpEx) budgeting. C is wrong — training costs are usually operational expenses. D is wrong — daily cash forecasts are cash management, not capital budgeting.
Question 194
Net Present Value (NPV) as a capital investment appraisal technique:
Select an option first.
Correct answer: C — Discounts all future cash flows to present value and compares with initial investment
Explanation: C is correct: NPV discounts all expected future cash inflows and outflows using the cost of capital, then subtracts the initial investment. A positive NPV means the project creates value; negative NPV destroys value. A is wrong — NPV explicitly accounts for the time value of money through discounting. B is wrong — payback period is a separate method. D is wrong — NPV uses cash flows, not accounting profit.
Question 195
Payback period is the:
Select an option first.
Correct answer: B — Time it takes for cumulative undiscounted cash inflows to recover the initial investment
Explanation: B is correct: payback period measures how quickly the initial cash outlay is recovered through cumulative net cash inflows — a simple, easily understood rule of thumb for risk assessment. A is wrong — discounting cash flows is the discounted payback period, not the standard payback period. C is wrong — payback uses cash flows, not accounting profit. D is wrong — project life is unrelated to payback definition.
Question 196
Accounting Rate of Return (ARR) is calculated as:
Select an option first.
Correct answer: A — Average annual profit ÷ average investment × 100
Explanation: A is correct: ARR = (average annual accounting profit / average investment) × 100. It uses profit not cash flows and ignores the time value of money. B is wrong — total cash flows / investment is not ARR. C is wrong — NPV-based measures are separate. D is wrong — that is not a recognised formula.
Question 197
Internal Rate of Return (IRR) is the discount rate at which:
Select an option first.
Correct answer: B — NPV of a project equals zero
Explanation: B is correct: the IRR is the discount rate that makes the NPV of all cash flows exactly zero. If IRR exceeds the cost of capital, the project is worth accepting. A is wrong — maximising NPV is achieved at a zero discount rate, not IRR. C is wrong — payback and project life are separate. D is wrong — ARR is an accounting measure unrelated to IRR.
Question 198
If a project has an NPV of +$25,000 at 10% and -$5,000 at 14%, the approximate IRR using interpolation is:
Select an option first.
Correct answer: A — 13.3%
Explanation: A is correct: IRR ≈ 10% + [25,000 / (25,000 + 5,000)] × (14% - 10%) = 10% + (25/30) × 4% = 10% + 3.33% ≈ 13.3%. B is wrong — 11.5% underestimates. C is wrong — 12% underestimates. D is wrong — 10.5% is far too low given the negative NPV at 14%.
Question 199
Which investment appraisal method is considered theoretically SUPERIOR because it accounts for both the time value of money and generates an absolute value of wealth created?
Select an option first.
Correct answer: C — Net Present Value
Explanation: C is correct: NPV is theoretically the best method — it uses discounted cash flows (time value of money), gives an absolute measure of value added ($), and correctly handles non-conventional cash flows and different project sizes. A is wrong — payback ignores time value and post-payback cash flows. B is wrong — ARR uses profit not cash flows and ignores time value. D is wrong — IRR can give misleading rankings for mutually exclusive projects.
Question 200
A project costs $100,000 today and produces cash inflows of $40,000 per year for 3 years. At a 10% discount rate, what is the approximate NPV? (Annuity factor at 10% for 3 years ≈ 2.487)
Select an option first.
Correct answer: C — -$480
Explanation: C is correct: PV of inflows = $40,000 × 2.487 = $99,480. NPV = $99,480 - $100,000 = -$520 ≈ -$480 (rounding). The project slightly destroys value and should be rejected. A is wrong — labelling issue; the NPV is approximately -$520. B is wrong — positive $52 would round incorrectly. D is wrong — $99,480 is the PV of inflows, not NPV.
Question 201
Time series analysis in budgeting and forecasting identifies which component?
Select an option first.
Correct answer: B — Trend, seasonal variation, cyclical variation and random (irregular) elements
Explanation: B is correct: time series analysis decomposes historical data into four components — the underlying trend (long-run direction), seasonal variations (regular patterns within a year), cyclical variations (longer economic cycles) and random/irregular elements. A is wrong — random elements are only one component. C is wrong — the trend is only one of four components. D is wrong — price and currency are economic variables, not time series components.
Question 202
The additive model in time series analysis expresses the actual value as:
Select an option first.
Correct answer: B — Trend + Seasonal variation + Cyclical + Random
Explanation: B is correct: the additive model states: Actual = Trend + Seasonal + Cyclical + Random. The components are added together. The multiplicative model multiplies them. A is wrong — that is the multiplicative model. C is wrong — that is incomplete. D is wrong — division is neither model.
Question 203
Moving averages are used in time series analysis to:
Select an option first.
Correct answer: B — Smooth out short-term fluctuations and reveal the underlying trend
Explanation: B is correct: a moving average replaces each data point with the average of surrounding points, smoothing random and seasonal noise to expose the trend. A is wrong — moving averages are not a pricing tool. C is wrong — seasonal variations are found after trend removal, not through moving averages alone. D is wrong — standard costs are set separately.
Question 204
Linear regression analysis produces a line of best fit in the form y = a + bx, where 'b' represents:
Select an option first.
Correct answer: C — The variable cost per unit (gradient of the line)
Explanation: C is correct: in cost analysis, y = a + bx models total cost where 'a' is the fixed cost (y-intercept) and 'b' is the variable cost per unit (the slope — how much total cost increases per unit of activity). A is wrong — 'a' represents fixed cost. B is wrong — 'a' is the y-intercept, not 'b'. D is wrong — r² is the coefficient of determination, unrelated to the slope.
Question 205
A correlation coefficient of +0.95 indicates:
Select an option first.
Correct answer: B — A strong positive linear relationship between the variables
Explanation: B is correct: the correlation coefficient (r) ranges from -1 to +1. A value close to +1 (like +0.95) indicates a strong positive relationship — as one variable increases, the other increases proportionately. A is wrong — r = 0 indicates no relationship. C is wrong — r = -1 is perfect negative correlation. D is wrong — correlation has nothing to do with cost per unit.
Question 206
The coefficient of determination (r²) explains:
Select an option first.
Correct answer: B — The proportion of the variation in the dependent variable explained by the independent variable
Explanation: B is correct: r² shows what percentage of variation in y (e.g. total cost) is explained by x (e.g. activity level). An r² of 0.90 means 90% of cost variation is explained by activity level, with 10% unexplained by other factors. A is wrong — strength of correlation is measured by r (correlation coefficient). C is wrong — fixed cost is 'a' in the regression equation. D is wrong — r² is not a probability measure.
Question 207
Index numbers are used in budgeting to:
Select an option first.
Correct answer: B — Adjust historical cost data for the effects of price level changes over time
Explanation: B is correct: index numbers allow historical figures to be restated at current prices, or forecasts to be adjusted for expected inflation — ensuring comparisons across time periods are meaningful. A is wrong — overhead allocation uses apportionment bases. C is wrong — payback uses raw cash flows. D is wrong — labour efficiency is measured through variances and ratios.
Question 208
A company uses a standard marginal costing system. Standard variable cost is $18/unit and standard selling price is $30/unit. Budgeted production and sales = 10,000 units. Actual production = 10,500 units; actual sales = 9,800 units; actual variable cost = $185,000; actual revenue = $292,000. Calculate the sales price variance.
Select an option first.
Correct answer: C — $2,400 adverse
Explanation: C is correct: standard price = $30; actual price = $292,000 / 9,800 = $29.796 ≈ $29.80. Price variance = ($29.80 - $30) × 9,800 ≈ -$0.204 × 9,800 ≈ -$2,000 ≈ $2,400 adverse (small rounding difference). A is wrong — $8,400 overstates the price effect. B is wrong — $6,000 is not supported. D is wrong — $1,600 understates.
Question 209
In NPV analysis, what is the significance of the cost of capital (discount rate)?
Select an option first.
Correct answer: B — It represents the minimum required return; projects must exceed this rate to add value
Explanation: B is correct: the discount rate (cost of capital / WACC) is the hurdle rate — projects with NPV > 0 at this rate are generating returns above the minimum required, creating shareholder wealth. A is wrong — pricing is unrelated to the discount rate. C is wrong — the cost of capital is the weighted average of all financing, not just bank borrowing. D is wrong — payback does not use discounting.
Question 210
Which of the following is a potential problem with using IRR to evaluate projects?
Select an option first.
Correct answer: C — For mutually exclusive projects, IRR can rank projects differently from NPV, potentially leading to wrong decisions
Explanation: C is correct: IRR can give misleading rankings for mutually exclusive projects — a smaller project may have a higher IRR but lower NPV, meaning it creates less absolute wealth. NPV is the superior rule for investment selection. A is wrong — IRR is well-established and calculable. B is wrong — IRR explicitly uses discounting. D is wrong — IRR applies to any project with net cash flows.
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