ACCA AS Performance Management — Questions and Answers
Question 1: Which of the following best describes a 'balanced scorecard'?
- A financial reporting framework for listed companies
- A performance management framework using financial and non-financial measures across four perspectives (Correct answer)
- A risk assessment tool for internal auditors
- A method of calculating the weighted average cost of capital
Correct answer: A performance management framework using financial and non-financial measures across four perspectives
The balanced scorecard (Kaplan & Norton) measures performance across four perspectives: Financial, Customer, Internal Business Processes, and Learning & Growth.
Question 2: Residual income (RI) is calculated as:
- Divisional profit ÷ Capital employed
- Divisional profit − (Capital employed × Cost of capital) (Correct answer)
- (Divisional profit − Depreciation) ÷ Capital employed
- Net profit after tax ÷ Number of shares
Correct answer: Divisional profit − (Capital employed × Cost of capital)
RI = Divisional profit − (Capital employed × Imputed cost of capital). Unlike ROI, RI is an absolute measure that encourages investment in projects earning above the cost of capital.
Question 3: Which of the following is an advantage of return on investment (ROI) as a divisional performance measure?
- It encourages divisional managers to accept all positive NPV projects
- It is directly comparable across divisions of different sizes (Correct answer)
- It always leads to goal congruence with head office
- It is unaffected by the age of assets in the division
Correct answer: It is directly comparable across divisions of different sizes
ROI is a relative measure (%), allowing fair comparison across divisions with different sizes. However, it can discourage investment in positive NPV projects if they dilute the existing ROI.
Question 4: Transfer pricing is used when:
- A company sells goods to an overseas customer
- One division sells goods or services to another division within the same organisation (Correct answer)
- A company sets prices based on cost-plus methodology
- A company negotiates a price with a government contract
Correct answer: One division sells goods or services to another division within the same organisation
Transfer prices are the internal prices charged when one profit centre (division) sells goods or services to another within the same organisation.
Question 5: Which transfer pricing method is most likely to achieve goal congruence?
- Cost-plus transfer pricing
- Market price transfer pricing (Correct answer)
- Marginal cost transfer pricing
- Dual pricing
Correct answer: Market price transfer pricing
Market price transfer pricing uses the external market price as the internal transfer price, aligning divisional incentives with overall company objectives and promoting goal congruence.
Question 6: A 'cost driver' in activity-based costing is:
- The total fixed overhead of a department
- The factor that causes the cost of an activity to change (Correct answer)
- The absorption rate per machine hour
- The variable cost per unit of output
Correct answer: The factor that causes the cost of an activity to change
A cost driver is the factor that causes the cost of an activity to vary (e.g., number of production runs drives set-up costs). ABC uses cost drivers to allocate overhead accurately.
ACCA AS Performance Management
Which of the following best describes a 'balanced scorecard'?