Free ACCA Performance Management Practice Questions

Question 1

A company's balanced scorecard shows: financial targets all met; customer satisfaction declining; process defect rate increasing; employee training cut. A new CEO wants to cut the BSC to financial measures only to 'keep it simple.' Advise.

Accepted Answer

Advise against: the BSC's value is precisely in revealing that financial success today is being built on deteriorating foundations (customer satisfaction, process quality, capability). Removing non-financial measures would hide these warning signals until financial results collapse — at which point it will be much harder and more expensive to recover

Answer

Support the CEO — financial results are what matter

Answer

Agree — fewer measures are always better

Answer

Reduce to two measures only: profit and ROI

Question 2

A company is deciding whether to expand into a new market. It uses the following non-financial factors to assess strategic fit: market growth rate (high), competitive intensity (high), regulatory complexity (high), cultural distance from existing markets (high). How should these factors be weighted?

Accepted Answer

The assessment is mixed: high growth is attractive but high competitive intensity, regulatory complexity and cultural distance all increase risk and cost. A structured scoring model weighting each factor by strategic importance, combined with financial scenario analysis, provides a more rigorous basis for the decision than single-factor analysis

Answer

Always expand if market growth is high

Answer

Expand immediately — growth rate dominates

Answer

Reject — any high-risk factor means decline

Question 3

A company has recently appointed a Chief Sustainability Officer and is developing its first sustainability report. What performance measures would be appropriate for the environmental dimension?

Accepted Answer

Carbon emissions per unit of output, energy consumption per unit, water usage, waste recycling rate, proportion of supply chain meeting environmental standards, and progress towards net zero targets

Answer

Revenue from green products only

Answer

Profit per employee

Answer

Number of sustainability staff

Question 4

What is a strategy map in the Balanced Scorecard context?

Accepted Answer

A visual diagram showing the causal relationships between objectives across the four BSC perspectives — how learning and growth capabilities enable process excellence, which drives customer outcomes, which creates financial results

Answer

A geographical map of the company's operations

Answer

A map of competitor strategies

Answer

A list of KPIs by department

Question 5

A non-profit organisation delivers meals to elderly residents. It measures: meals delivered per volunteer hour (efficiency), percentage of service users rating quality as good or excellent (effectiveness), and cost per meal (economy). Evaluate its VFM performance if all three are improving.

Accepted Answer

All three Es improving simultaneously is the ideal VFM outcome: the organisation is delivering more meals per volunteer hour (efficiency), quality is improving (effectiveness), and cost per meal is falling (economy). This represents genuinely improving VFM — sustainable only if quality and efficiency gains are real and not achieved by cutting corners.

Answer

Only financial metrics matter for non-profits

Answer

Non-profits do not need VFM measurement

Answer

VFM only applies to government organisations

Question 6

A manufacturing company measures 'first-pass yield' (percentage of units produced correctly without rework or repair on first attempt). Currently 78%, industry average 91%. What action does this signal?

Accepted Answer

Significant quality problem: 22% of output requires rework or scrap, increasing cost and throughput time. Root cause analysis is needed (materials quality, machine calibration, operator skill, process design). Improvement would reduce waste costs, free bottleneck capacity, and improve customer delivery times.

Answer

No action — 78% is acceptable

Answer

Increase production volume to compensate

Answer

Reduce the quality standard to 78%

Question 7

A retail chain measures footfall (customers entering stores), conversion rate (% who purchase), and average transaction value. How do these three metrics combine to drive revenue?

Accepted Answer

Revenue = Footfall x Conversion rate x Average transaction value. Together they decompose total revenue into its three drivers, enabling management to identify whether revenue changes are driven by traffic, purchasing behaviour, or spend per visit.

Answer

They are independent measures with no relationship

Answer

Only average transaction value matters for revenue

Answer

Conversion rate is the only meaningful metric

Question 8

A company's BSC shows: Financial (revenue +15%, margins stable); Customer (satisfaction -8%, churn +5%); Internal Process (defect rate +3%, delivery delays +10%); Learning and Growth (training budget cut 40%, staff turnover +12%). Assess strategic risk.

Accepted Answer

Severe strategic risk: the three non-financial perspectives are all deteriorating simultaneously. The improving financial results are likely lagging outcomes of past investments. Deteriorating processes, customer experience and employee capability will damage future financial performance — the strategy is being consumed, not sustained

Answer

No risk — financial results are positive

Answer

Only the customer perspective matters

Answer

Staff turnover is normal — no concern

Question 9

A public sector hospital measures: cost per patient treated (economy), patients treated per nurse per shift (efficiency), and patient readmission rate within 30 days (effectiveness). The hospital reduces cost per patient by 20% by reducing nursing ratios. Readmission rate rises 15%. Evaluate using VFM.

Accepted Answer

Economy improves (lower cost per patient). Efficiency may improve or be unchanged. But effectiveness deteriorates significantly (higher readmissions indicate worse patient outcomes). The hospital is not achieving VFM because it is not effectively meeting its primary objective — improved patient health outcomes

Answer

All VFM criteria are met — cost is lower

Answer

VFM only measures cost

Answer

Readmission rate is not a VFM measure

Question 10

A listed company is measured on: EPS growth (financial), customer loyalty index (customer), process automation rate (internal process), and management succession pipeline strength (learning and growth). Over 3 years: EPS +20%, loyalty index -15%, automation +30%, succession pipeline deteriorating. The CEO receives a bonus based solely on EPS. Evaluate the incentive design.

Accepted Answer

The incentive design is misaligned with the BSC strategy: by rewarding only EPS growth, the CEO has an incentive to cut costs (automation may reduce headcount, improving EPS) at the expense of customer loyalty and management development. Long-run EPS sustainability will be damaged as customer retention falls and leadership pipeline weakens. Recommend a balanced scorecard-linked bonus across all four perspectives

Answer

EPS-only bonuses are the gold standard for listed companies

Answer

Automation is always positive for performance

Answer

Customer loyalty is irrelevant if EPS grows

Question 11

Integrated reporting () extends performance reporting beyond financial statements to include:

Accepted Answer

Six capitals: financial, manufactured, intellectual, human, social and relationship, and natural capital — showing how the organisation creates value over time across all these dimensions

Answer

Only environmental costs

Answer

Only CSR disclosures

Answer

Historical financial data only

Question 12

A company has: Current ratio 1.8, Quick ratio 1.7, Receivables days 62, Payables days 38, Inventory days 4. Gearing 55%, Interest cover 2.1x. Comment on financial health and identify the most significant risk.

Accepted Answer

Liquidity appears adequate (current ratio 1.8) with minimal inventory (quick ratio almost equal to current). However, the most significant risk is financial — gearing of 55% is high and interest cover of 2.1x is dangerously low. A modest fall in profit could threaten debt service. Receivables days of 62 vs payables of 38 creates working capital pressure (collecting slowly, paying quickly)

Answer

Excellent financial health — all ratios are positive

Answer

No significant risks identified

Answer

Inventory management is the primary risk

Question 13

A company's strategy map shows four causal links: (1) Invest in data analytics capability → (2) Improve demand forecasting accuracy → (3) Reduce inventory waste and stock-outs → (4) Improve customer fill rate → (5) Increase repeat customer revenue. A board member argues the company should cut the data analytics investment (1) to save 200,000. Evaluate this argument using the BSC causal model.

Accepted Answer

Incorrect — the analytics investment is the root cause driving the entire value chain. Cutting it will degrade forecasting, increase waste and stock-outs, reduce fill rates and ultimately cost repeat revenue. The 200,000 saving may be far outweighed by the downstream revenue and efficiency losses.

Answer

Correct — 200,000 saving goes straight to profit

Answer

Correct — IT investments rarely pay off

Answer

The causal model only applies to financial decisions

Question 14

A group CFO proposes linking 30% of all senior manager bonuses to non-financial KPIs: customer satisfaction (10%), employee engagement (10%), and sustainability metrics (10%). The remaining 70% is linked to financial targets. Evaluate this incentive design.

Accepted Answer

The balanced incentive design is sound: linking 30% to non-financial measures reduces the risk of financial short-termism while maintaining strong financial accountability (70%). The specific metrics chosen (customer, people, sustainability) represent leading indicators aligned with long-run value creation. Implementation risks include target manipulation and difficulty in objectively measuring some non-financial KPIs.

Answer

Entirely financial incentives are always better

Answer

Non-financial bonuses always fail

Answer

Sustainability metrics should not be in bonuses

Question 15

A company's strategy is 'differentiation through superior customer service.' Its current KPIs are: revenue, profit, and ROI. Evaluate the alignment of KPIs with strategy and recommend improvements.

Accepted Answer

The current KPIs are purely financial and lagging — they cannot measure whether superior customer service is being delivered. For a differentiation strategy, KPIs should include: customer satisfaction score, complaint resolution time, first-call resolution rate, Net Promoter Score, customer retention rate, and service quality indices. Financial KPIs should be supplemented, not replaced.

Answer

Current KPIs are perfect for a differentiation strategy

Answer

Strategy is irrelevant to KPI selection

Answer

ROI captures all aspects of customer service performance

Question 16

A group CFO argues that Return on Investment should be the sole performance measure for all divisions because it is simple and universally understood. Critique this position comprehensively.

Accepted Answer

ROI as sole measure creates multiple dysfunctions: (1) rejects value-creating projects that dilute ROI; (2) distorted by asset age (old assets inflate ROI); (3) backward-looking financial only — ignores customer, process and people dimensions; (4) short-term focus — cutting investment boosts ROI but destroys long-run value. Recommend: supplement ROI with RI (for investment decisions), non-financial BSC measures (for strategic alignment), and absolute profit measures.

Answer

ROI is perfect — the CFO is correct

Answer

ROI is too complex for most managers

Answer

RI is also inadequate — use only revenue as the measure

Question 17

A technology company's Balanced Scorecard has 47 KPIs across all four perspectives. A new CEO wants to reduce this to no more than 15-20 KPIs. Advise on the reduction process.

Accepted Answer

Too many KPIs dilute management focus and create reporting burden without improving performance. The reduction process should: (1) identify 3-5 Critical Success Factors per perspective directly linked to strategic objectives; (2) select 1-3 KPIs per CSF; (3) test that the resulting 15-20 KPIs form a coherent strategy map with causal links; (4) ensure a balance of leading and lagging indicators. Remove KPIs that are duplicative, non-strategic, or unmeasurable

Answer

Keep all 47 — more is better

Answer

Reduce to 5 financial KPIs only

Answer

Keep 47 but report quarterly instead of monthly

Question 18

A company adopts integrated reporting under the IIRC framework. It must report on six capitals. Give one example KPI for each capital.

Accepted Answer

Financial capital: ROCE; Manufactured: Asset age; Intellectual: Patents; Human: Turnover rate; Social/Relationship: NPS; Natural: Carbon emissions per unit

Answer

Financial capital only — others are optional

Answer

All capitals are the same measure

Answer

Integrated reporting only covers financial and environmental capitals

Question 19

A global company faces increasing pressure from institutional investors, regulators and customers to demonstrate ESG (Environmental, Social, Governance) performance. Currently it measures only financial KPIs. Design a framework for integrating ESG KPIs into its performance management system.

Accepted Answer

Integrate ESG into the BSC framework: Environmental dimension maps to internal process (carbon intensity, waste per unit, energy efficiency) and natural capital in IR; Social dimension maps to learning and growth (employee safety, diversity, training investment) and social capital; Governance maps to financial perspective controls (board independence, audit quality, executive pay ratios). Set targets, link to management incentives, and report transparently via integrated report.

Answer

Ignore ESG — investors only care about financial returns

Answer

Create a separate ESG report with no link to management performance

Answer

ESG is only relevant for manufacturing companies

Question 20

A company has implemented a performance-related pay system where 40% of manager bonuses are linked to non-financial KPIs (customer satisfaction 20%, employee engagement 10%, safety incidents 10%). After one year, the company finds some managers are manipulating satisfaction survey distribution to avoid including unhappy customers. Identify the control weakness and recommend improvements.

Accepted Answer

Gaming of non-financial KPIs is a common implementation risk. Control weaknesses: (1) managers control survey distribution, allowing selection bias; (2) KPI measurement methodology is not independently verified. Recommendations: (1) use independent third-party survey administration; (2) random sampling of customers with no manager involvement; (3) audit KPI data before bonus calculation; (4) include complaint rate as a cross-check measure; (5) peer-review mechanisms.

Answer

No issue — the results are valid

Answer

Remove all non-financial KPIs from bonus schemes

Answer

Reduce the weighting of customer satisfaction

Question 21

A favourable variance means:

Accepted Answer

Actual cost is below budget, or actual revenue exceeds budget

Answer

Actual cost exceeds budget

Answer

The business has made a profit

Answer

All targets have been exceeded

Question 22

The direct material price variance measures:

Accepted Answer

The difference between actual price paid and standard price, for the actual quantity of material

Answer

The difference in quantity of material used

Answer

The total material cost difference

Answer

The overhead rate change

Question 23

The direct material usage variance measures:

Accepted Answer

The difference between standard quantity allowed for actual production and actual quantity used, valued at standard price

Answer

The price difference on materials purchased

Answer

The total cost of material waste

Answer

The change in inventory levels

Question 24

The direct labour rate variance measures:

Accepted Answer

The difference between standard pay rate and actual pay rate for actual hours worked

Answer

Hours worked versus hours budgeted

Answer

Overtime premium paid

Answer

Productivity of the workforce

Question 25

The direct labour efficiency variance measures:

Accepted Answer

The difference between standard hours for actual output and actual hours worked, valued at standard rate

Answer

Overtime costs

Answer

Hours paid but not worked (idle time)

Answer

The change in labour headcount

Question 26

The fixed overhead expenditure variance is:

Accepted Answer

Budgeted fixed overhead minus actual fixed overhead

Answer

Absorbed overhead minus budgeted overhead

Answer

Standard hours times OAR minus actual overhead

Answer

The volume effect on overhead recovery

Question 27

The fixed overhead volume variance arises because:

Accepted Answer

Actual production volume differs from budgeted volume, causing over or under-absorption of fixed overheads

Answer

Actual overhead spending differs from budget

Answer

Labour rates changed

Answer

Variable costs exceeded budget

Question 28

An idle time variance is:

Accepted Answer

The cost of hours paid to workers not productively employed, valued at standard rate — always adverse

Answer

Always favourable

Answer

The efficiency variance divided by two

Answer

A subset of the material usage variance

Question 29

The sales price variance is:

Accepted Answer

The difference between actual selling price and standard selling price for actual quantity sold

Answer

The volume effect on profit

Answer

The difference between budget and actual revenue

Answer

Fixed overhead in sales revenue

Question 30

The sales volume variance (under marginal costing) is:

Accepted Answer

(Actual volume - Budgeted volume) x Standard contribution per unit

Answer

Sales price difference times volume

Answer

The total revenue variance

Answer

The fixed overhead recovered per unit sold

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Free ACCA Performance Management Practice Questions & Answers

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