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Free Questions › ACCA › Performance Management
Free ACCA Performance Management Practice Questions & Answers
400 exam-style Performance Management questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 121
ABC is being considered for a company with two products: Standard (high volume, simple) and Premium (low volume, complex with many setups and engineering changes). Which product would be over-costed by traditional absorption and under-costed by ABC?
Select an option first.
Correct answer: D — Neither is affected
Explanation: A
Question 122
Traditional absorption: single OAR of 20/labour hr. Product P (high volume): 4 hrs/unit, 10,000 units. Product Q (low volume, complex): 6 hrs/unit, 1,000 units. Total overhead 900,000. ABC: Setup pool 300,000 (P:100 setups, Q:200 setups); Machining pool 400,000 (P:30,000 machine hrs, Q:10,000 machine hrs); Admin pool 200,000 (P:500 orders, Q:500 orders). Compare overhead per unit.
Select an option first.
Correct answer: D — ABC and traditional are equivalent for high-volume products
Explanation: A
Question 123
A company is comparing ABC and traditional costing for three products (A: high volume, simple; B: medium volume, moderate complexity; C: low volume, highly complex). Under traditional costing, A is the most profitable; under ABC, C is the most profitable. Explain why and what strategic implications arise.
Select an option first.
Correct answer: D — The company should switch back to traditional costing
Explanation: B
Question 124
The primary purpose of a budget is:
Select an option first.
Correct answer: B — To provide a forward-looking financial plan that coordinates activities, sets targets and provides a basis for control
Explanation: B
Question 125
The principal budget factor (key budget factor) is:
Select an option first.
Correct answer: B — The factor that limits activity — identified first so all other budgets are built around it
Explanation: B
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Question 126
A flexed budget adjusts:
Select an option first.
Correct answer: B — The original fixed budget to show costs and revenues at the actual level of activity achieved
Explanation: B
Question 127
Incremental budgeting takes the prior year's budget or actuals as:
Select an option first.
Correct answer: B — A starting point, then adjusts for expected changes
Explanation: B
Question 128
Zero-based budgeting requires:
Select an option first.
Correct answer: B — Every cost to be justified from scratch each period, regardless of prior spend
Explanation: B
Question 129
A rolling budget is one that:
Select an option first.
Correct answer: B — Continuously adds a new future period as the most recent period expires, maintaining a constant planning horizon
Explanation: B
Question 130
Participative budgeting involves:
Select an option first.
Correct answer: B — Managers at all levels contributing to and helping set their own budgets
Explanation: B
Question 131
Budget slack is:
Select an option first.
Correct answer: B — The deliberate overstatement of costs or understatement of revenues to create an easier target to achieve
Explanation: B
Question 132
Activity-based budgeting (ABB) bases resource budgets on:
Select an option first.
Correct answer: B — The expected volume of cost drivers and the activities that consume resources
Explanation: B
Question 133
What is the danger of budget slack from a management control perspective?
Select an option first.
Correct answer: C — Budget slack distorts performance evaluation — managers appear to outperform easily because the benchmark is deliberately set below what is achievable
Explanation: C
Question 134
A flexible budget differs from a fixed budget in that:
Select an option first.
Correct answer: B — A flexible budget adjusts costs and revenues for different levels of activity; a fixed budget is set for one level only
Explanation: B
Question 135
Which of the following is a limitation of zero-based budgeting?
Select an option first.
Correct answer: B — It is time-consuming, resource-intensive and can be demotivating if managers feel all their work must be re-justified every year
Explanation: B
Question 136
A functional budget is:
Select an option first.
Correct answer: B — A detailed budget for a specific function or department (e.g., sales budget, production budget, labour budget)
Explanation: B
Question 137
What is the difference between top-down and bottom-up budgeting?
Select an option first.
Correct answer: B — Top-down: budgets imposed from senior management. Bottom-up (participative): operational managers contribute to setting their own budgets. Bottom-up improves accuracy and motivation but risks budget slack
Explanation: B
Question 138
What is a capital budget?
Select an option first.
Correct answer: B — A budget for planned spending on long-term assets such as property, plant and equipment
Explanation: B
Question 139
Which of the following is a benefit of using a budget for planning?
Select an option first.
Correct answer: B — It quantifies plans in financial terms, forcing management to think ahead, identify resource requirements, and coordinate activities across departments
Explanation: B
Question 140
What is the production budget?
Select an option first.
Correct answer: B — The number of units that must be produced to meet sales demand plus any required closing inventory, minus opening inventory
Explanation: B
Question 141
What is a cash budget (cash flow forecast) used to identify?
Select an option first.
Correct answer: B — Periods when the business will have cash surpluses or deficits, enabling proactive financial management
Explanation: B
Question 142
The sales budget should be prepared first (after identifying the principal budget factor) because:
Select an option first.
Correct answer: B — All other budgets (production, materials, labour, overheads, cash) depend on the sales volume forecast, making it the starting point when demand is the limiting factor
Explanation: B
Question 143
What is a budget committee?
Select an option first.
Correct answer: B — A cross-functional group of senior managers responsible for coordinating the budget preparation process, resolving conflicts between functional budgets, and presenting the final master budget for board approval
Explanation: B
Question 144
What is the difference between a fixed budget and a flexible budget?
Select an option first.
Correct answer: B — A fixed budget is prepared for one level of activity and does not change when actual activity differs; a flexible budget is prepared for multiple activity levels or can be adjusted to actual activity (flexed) for meaningful variance analysis
Explanation: B
Question 145
What is the key reason why some organisations resist implementing zero-based budgeting?
Select an option first.
Correct answer: B — ZBB is very time-consuming and resource-intensive — requiring managers to justify all activities from scratch each year — and may be seen as threatening to departmental status and established activities
Explanation: B
Question 146
What is the purpose of a labour budget?
Select an option first.
Correct answer: B — To forecast the number of hours and cost of direct and indirect labour needed to achieve the production budget
Explanation: B
Question 147
Fixed budget: revenue 600,000, variable costs 360,000, fixed costs 180,000, profit 60,000. Actual volume is 10% above budget. Variable costs maintained at 60% of revenue. Actual fixed costs: 185,000. Calculate actual profit versus flexed budget profit.
Select an option first.
Correct answer: A — Flexed profit 66,000; actual profit 61,000; total adverse variance 5,000
Explanation: A
Question 148
Identify the strongest argument for using rolling forecasts over annual fixed budgets.
Select an option first.
Correct answer: B — Rolling forecasts continuously incorporate new information, keeping the planning horizon relevant and reducing the staleness of a fixed annual budget in rapidly changing environments
Explanation: B
Question 149
Beyond budgeting proposes replacing fixed annual budgets with:
Select an option first.
Correct answer: B — Relative performance benchmarks and rolling forecasts that adapt to changing conditions
Explanation: B
Question 150
What is the main purpose of a cash budget?
Select an option first.
Correct answer: B — To forecast cash surpluses and shortfalls so that financing or investment can be arranged in advance
Explanation: B
More free ACCA topics
Management Accounting401
Financial Accounting400
Corporate and Business Law400
Financial Reporting400
Financial Management400
Strategic Business Reporting400
Advanced Financial Management400
Advanced Performance Management400
Advanced Taxation400
Business and Technology300
Taxation300
Audit and Assurance300
Strategic Business Leader300
Advanced Audit and Assurance296
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