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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 211
Sensitivity analysis in investment appraisal shows:
Select an option first.
Correct answer: B — How much a key variable (e.g. sales volume, cost) can change before the project ceases to be viable
Explanation: B is correct: sensitivity analysis calculates the percentage by which a variable (sales price, volume, cost, project life) can change before the NPV turns negative — identifying which variables are most critical to project viability. A is wrong — the most likely outcome is point estimate analysis. C is wrong — probability is the domain of expected value and simulation. D is wrong — sensitivity measures impact on NPV, not ARR.
Question 212
A project has an NPV of $20,000. Its sensitivity to sales volume (PV of contribution $200,000) is:
Select an option first.
Correct answer: B — 10%
Explanation: B is correct: sensitivity = NPV / PV of relevant cash flow × 100 = $20,000 / $200,000 × 100 = 10%. Sales volume can fall by 10% before the project breaks even (NPV = 0). A is wrong — 100% would mean no margin at all. C is wrong — 20% is not the correct calculation. D is wrong — 2% would require $1,000,000 PV of contribution.
Question 213
Throughput accounting ranks products by:
Select an option first.
Correct answer: C — Highest throughput contribution per unit of bottleneck resource
Explanation: C is correct: throughput accounting (from the Theory of Constraints) defines throughput as sales minus direct material costs and ranks products by throughput per unit of the binding constraint (bottleneck), maximising the exploitation of the system's weakest link. A is wrong — gross margin is an absorption costing measure. B is wrong — marginal costing contribution per unit does not account for the bottleneck in the same way. D is wrong — selling price ignores cost and resource usage.
Question 214
In throughput accounting, factory costs other than direct materials are treated as:
Select an option first.
Correct answer: B — Period costs (operating expenses) charged in full to the current period
Explanation: B is correct: in throughput accounting, all costs other than raw materials (labour, overheads, even direct labour in some interpretations) are treated as fixed period costs — the focus is entirely on maximising throughput through the bottleneck. A is wrong — throughput accounting rejects the idea of allocating these costs to units. C is wrong — they are not tracked per batch. D is wrong — only material costs are deducted in computing throughput contribution.
Question 215
What does the term 'adverse variance' indicate in a standard costing report?
Select an option first.
Correct answer: B — The actual result was worse than standard, reducing profit
Explanation: B is correct: an adverse (unfavourable) variance means the actual result was worse than standard — actual costs exceeded standard, or actual revenue was below standard — both reducing profit relative to budget. A is wrong — better than expected is a favourable variance. C is wrong — variances are not automatically a signal to revise the budget. D is wrong — fixed cost increases would be just one possible cause.
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Question 216
Which of the following is a weakness of standard costing in a modern manufacturing environment?
Select an option first.
Correct answer: B — It was designed for stable, repetitive manufacturing and may be less relevant in dynamic, customised production environments
Explanation: B is correct: standard costing was designed for mass production where costs are stable and products uniform. In today's world of custom products, short product life cycles and lean manufacturing, setting and maintaining meaningful standards is more difficult. A is wrong — standard costing can be complex to implement. C is wrong — material costs are a core part of standard costing. D is wrong — standard costing and flexible budgets complement each other.
Question 217
A production manager is responsible for an adverse material usage variance. Which of the following is a valid cause?
Select an option first.
Correct answer: A — The purchasing department bought cheaper but inferior quality material
Explanation: A is correct: inferior quality raw materials (often purchased at a lower price) lead to more waste, spoilage and rework — causing more material to be used per unit than standard, creating an adverse usage variance. This shows the interdependency between price and usage variances. B is wrong — selling prices affect revenue variances, not usage. C is wrong — overhead changes drive overhead variances. D is wrong — demand affects volume variances.
Question 218
The labour efficiency variance is $6,000 favourable. What does this most likely indicate?
Select an option first.
Correct answer: B — Workers completed actual output in fewer hours than the standard time allowed
Explanation: B is correct: a favourable efficiency variance means actual hours worked were LESS than the standard hours allowed for actual output — workers were more productive than standard. A is wrong — workers being paid more is a rate variance (adverse). C is wrong — more output than budget affects volume variances. D is wrong — lower fixed overheads are an overhead expenditure variance.
Question 219
When preparing a cash flow budget, which item is NOT included?
Select an option first.
Correct answer: B — Depreciation expense
Explanation: B is correct: depreciation is a non-cash accounting charge — it does not involve any movement of cash. Cash budgets only include actual cash receipts and payments. A is wrong — loan repayments are cash outflows. C is wrong — asset sale proceeds are cash inflows. D is wrong — tax payments are real cash outflows.
Question 220
Beyond Budgeting (BB) was developed as a response to which criticism of traditional budgeting?
Select an option first.
Correct answer: B — Traditional budgets are too rigid, time-consuming and can distort behaviour, disconnecting strategy from operations
Explanation: B is correct: Beyond Budgeting challenges the annual budgeting cycle as bureaucratic, slow, encouraging gaming and slack, and failing to adapt to rapidly changing environments. It advocates rolling forecasts, decentralised targets and relative performance measures instead. A is wrong — traditional budgets are criticised for consuming too MUCH management time. C is wrong — budgets are typically criticised for being too financially focused. D is wrong — variance complexity is not the central critique.
Question 221
What is 'goal congruence' in the context of budgeting and performance management?
Select an option first.
Correct answer: B — When individual managers' goals and actions are aligned with the overall objectives of the organisation
Explanation: B is correct: goal congruence exists when what managers are incentivised to do aligns with what is best for the organisation as a whole — avoiding situations where managers optimise their own metrics at the expense of overall performance. A is wrong — cost allocation agreement is a technical accounting issue. C is wrong — zero variance is not the definition. D is wrong — simultaneous budgeting is a process issue.
Question 222
Expected value in decision-making is calculated as:
Select an option first.
Correct answer: B — The sum of (probability × outcome) for all possible outcomes
Explanation: B is correct: expected value = Σ (probability × outcome). It weights each possible outcome by its probability and sums them, giving a probability-weighted average. A is wrong — the most likely outcome is the modal outcome, not expected value. C is wrong — the best outcome is the maximum, not EV. D is wrong — worst outcome is used in maximin decisions.
Question 223
A decision-maker who uses the maximin criterion is:
Select an option first.
Correct answer: B — Identifying the worst possible outcome of each option and choosing the option with the best worst-case result
Explanation: B is correct: maximin is a pessimistic (risk-averse) rule — the decision-maker looks at the minimum payoff from each option and selects the option whose minimum is highest, protecting against the worst outcome. A is wrong — that is the maximax (optimistic) approach. C is wrong — that is expected value. D is wrong — that is minimax regret.
Question 224
A raw material purchases budget is derived from:
Select an option first.
Correct answer: B — The production budget adjusted for opening and closing raw material inventory
Explanation: B is correct: purchases = production quantity needed × material per unit, adjusted for opening and closing raw material inventory. You need to buy enough to support production and end with the right inventory level. A is wrong — purchases come from production requirements, not sales directly. C is wrong — labour and materials are separate. D is wrong — OAR relates to overhead, not purchases.
Question 225
A company budgets to produce 4,000 units. Each unit needs 3 kg of material. Opening raw material inventory is 500 kg; desired closing inventory is 800 kg. How many kg should be purchased?
Select an option first.
Correct answer: B — 12,300 kg
Explanation: B is correct: material required for production = 4,000 × 3 = 12,000 kg. Purchases = 12,000 + closing inventory - opening inventory = 12,000 + 800 - 500 = 12,300 kg. A is wrong — 12,000 kg ignores inventory movements. C is wrong — 11,700 deducts closing and adds opening (inverted). D is wrong — 12,500 is not supported.
Question 226
A labour budget shows that 5,000 standard hours of work are required. Each employee works 40 hours per week. The budget covers 4 weeks. How many employees are needed?
Select an option first.
Correct answer: A — 31.25 employees → round up to 32
Explanation: A is correct: available hours per employee over 4 weeks = 40 × 4 = 160 hours. Employees needed = 5,000 / 160 = 31.25 → round up to 32 (you cannot have a fraction of an employee). B is wrong — 50 employees would provide 8,000 hours, more than needed. C is wrong — 125 employees is based on 40 hours total, not over 4 weeks. D is wrong — 20 employees provides only 3,200 hours.
Question 227
A cash budget shows a surplus of $30,000 at the end of a month. What action might management take?
Select an option first.
Correct answer: C — Consider short-term investment of the surplus to earn interest
Explanation: C is correct: a predicted cash surplus gives management the opportunity to plan short-term investment — placing surplus funds in interest-bearing accounts or short-term instruments to generate return while maintaining liquidity. A is wrong — an overdraft is needed for shortfalls, not surpluses. B is wrong — surplus cash does not require spending cuts. D is wrong — depreciation is a non-cash item; it doesn't affect the cash budget.
Question 228
The sales volume variance (at standard profit) used in an absorption costing operating statement equals:
Select an option first.
Correct answer: A — (Actual units sold - budgeted units sold) × standard profit per unit
Explanation: A is correct: under absorption costing, the sales volume variance uses standard profit per unit (since fixed overheads are absorbed). Under marginal costing, it uses standard contribution per unit. B is wrong — that is the marginal costing version of the sales volume variance. C is wrong — that is the sales price variance. D is wrong — that is the labour efficiency variance.
Question 229
A flexed budget shows variable costs of $8/unit and fixed costs of $60,000. Actual production was 5,500 units. Actual total cost was $108,000. What is the total cost variance?
Select an option first.
Correct answer: A — $4,000 favourable
Explanation: A is correct: flexed budget cost = (5,500 × $8) + $60,000 = $44,000 + $60,000 = $104,000. Actual = $108,000. Variance = $104,000 - $108,000 = -$4,000 = $4,000 adverse. Wait — adverse means actual worse. Let me re-read question. Actual $108,000 > flexed $104,000 → $4,000 adverse. Answer B is correct. B is correct: actual costs exceeded the flexed budget by $4,000 — an adverse variance. Actual $108,000 vs flexed $104,000.
Question 230
The fixed overhead volume efficiency variance measures:
Select an option first.
Correct answer: C — Whether workers were more or less efficient than standard, expressed in terms of fixed overhead absorbed
Explanation: C is correct: fixed overhead volume efficiency = (standard hours for actual output - actual hours worked) × fixed overhead absorption rate per hour. It isolates the efficiency element of the volume variance. A is wrong — that is the expenditure variance. B is wrong — that is the volume capacity variance. D is wrong — variable costs are in separate variances.
Question 231
What is meant by 'controllable costs' in the context of responsibility accounting?
Select an option first.
Correct answer: B — Costs that a specific manager can influence through their decisions within their area of authority
Explanation: B is correct: controllable costs are those within the power of the responsible manager to influence — for example, a production manager can control machine running costs and material usage but not head office rent apportioned to their department. A is wrong — size is irrelevant to controllability. C is wrong — appearing in the accounts doesn't make a cost controllable. D is wrong — fixed costs can be controllable (e.g. departmental advertising budget).
Question 232
A rolling 12-month budget is typically updated by:
Select an option first.
Correct answer: B — Replacing the most recent completed month with a new future month, always maintaining a 12-month horizon
Explanation: B is correct: a rolling (continuous) budget drops the period just completed and adds a new period at the far end — always keeping the planning horizon at 12 months. This keeps the budget current and forward-looking. A is wrong — adding 12 months only annually is traditional budgeting. C is wrong — revising all months is resource-intensive and not typical. D is wrong — hybrid fixed/rolling is not the standard rolling approach.
Question 233
Which of the following describes a 'budget holder'?
Select an option first.
Correct answer: B — A manager who is responsible and accountable for meeting the budget for their department or area
Explanation: B is correct: a budget holder is the manager with authority and accountability for a specific budget — they manage spending and performance against their budget and are held responsible for material variances. A is wrong — a budget preparer may be a finance analyst, not the holder. C is wrong — auditors review, not hold, budgets. D is wrong — shareholders don't typically approve operational budgets.
Question 234
Which of the following is a benefit of preparing a cash flow budget?
Select an option first.
Correct answer: B — It enables management to anticipate cash shortfalls in advance and arrange appropriate financing
Explanation: B is correct: the most important benefit of a cash budget is foresight — seeing a cash deficit weeks or months in advance gives management time to arrange overdraft facilities, delay capital expenditure or speed up collections before a crisis hits. A is wrong — cash flow and profit are different; a profitable business can still have cash flow problems. C is wrong — the income statement is needed for profitability analysis. D is wrong — working capital management is an ongoing process.
Question 235
Overhead efficiency variance (variable overhead) is calculated as:
Select an option first.
Correct answer: B — (Standard hours for actual output - actual hours worked) × variable overhead rate per hour
Explanation: B is correct: variable overhead efficiency = (standard hours for actual output - actual hours worked) × standard variable overhead rate. It measures whether the efficiency of labour/machine use caused more or less variable overhead to be incurred. A is wrong — budgeted vs actual hours is the capacity variance concept, not efficiency. C is wrong — that is closer to the expenditure variance. D is wrong — actual rate is used in the expenditure variance.
Question 236
If standard variable overhead rate is $4 per hour, standard hours for actual output = 3,200 hrs, and actual hours worked = 3,500 hrs, what is the variable overhead efficiency variance?
Select an option first.
Correct answer: A — $1,200 adverse
Explanation: A is correct: efficiency variance = (3,200 - 3,500) × $4 = -300 × $4 = -$1,200 = $1,200 adverse. Workers used 300 more hours than standard, costing an extra $1,200 in variable overhead. B is wrong — $300 is the hour difference, not multiplied by the rate. C is wrong — the variance is adverse (actual hours exceeded standard). D is wrong — $800 is not supported.
Question 237
What does a favourable fixed overhead volume variance indicate?
Select an option first.
Correct answer: B — Actual production output was greater than budgeted, absorbing more fixed overhead than planned
Explanation: B is correct: a favourable volume variance means actual production exceeded budget, causing more overhead to be absorbed (actual units × OAR > budgeted overhead). The factory was busier than planned. A is wrong — actual vs budgeted overhead spend is the expenditure variance. C is wrong — labour rates affect the labour rate variance. D is wrong — variable costs relate to different variances.
Question 238
Top-down (imposed) budgeting has which advantage over participative budgeting?
Select an option first.
Correct answer: C — Faster to prepare and less likely to contain budget padding (slack)
Explanation: C is correct: senior management setting budgets top-down is quicker (no extensive consultation) and reduces the risk of subordinate managers building in slack, since they don't control the numbers. A is wrong — front-line managers have better operational information; excluding them reduces quality. B is wrong — imposed budgets can demotivate managers who feel targets are unrealistic. D is wrong — top-down budgets don't eliminate overspending.
Question 239
The fixed overhead total variance is:
Select an option first.
Correct answer: D — Both A and C — absorbed overhead = OAR × actual output, which equals C
Explanation: D is correct: total fixed overhead variance = absorbed overhead - actual overhead = (standard hours for actual production × OAR) - actual overhead. Equivalently, this = expenditure variance + volume variance. A restates the same thing but less precisely. B is wrong — that is only the expenditure variance. C is the correct formula matching D.
Question 240
Which of the following is an example of a non-controllable cost at the production manager level?
Select an option first.
Correct answer: C — A share of head office costs allocated to the production department
Explanation: C is correct: allocated head office costs are set by corporate decisions entirely outside the production manager's influence — they are non-controllable at that level and should be excluded from the production manager's performance report. A is wrong — material usage is directly controlled by the production manager. B is wrong — overtime approved by the manager is their decision. D is wrong — machine-driven overhead is within operational control.
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