Performance Management (PM) Flashcards
6 cards from real ACCA AS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Performance Management (PM) flashcards as text
A company manufactures two products, X and Y. Product X has a contribution per unit of £15 and requires 3 machine hours. Product Y has a contribution per unit of £20 and requires 5 machine hours. If machine hours are the binding constraint, which product should be prioritised?
Answer: Product X, because it has higher contribution per limiting factor
When resources are constrained, products should be ranked by contribution per unit of the limiting factor. Product X: £15/3 = £5 per machine hour. Product Y: £20/5 = £4 per machine hour. Product X generates a higher contribution per machine hour (£5 vs £4), so it should be prioritised despite Product Y having a higher contribution per unit.
What is the primary purpose of a flexed budget?
Answer: To adjust the original budget to reflect the actual level of activity achieved
A flexed budget adjusts the original (fixed) budget to the actual activity level, allowing meaningful comparison with actual results. This separates volume variances from expenditure variances, enabling more useful performance analysis.
In a standard costing system, a favourable material usage variance indicates that:
Answer: Fewer materials were used than the standard quantity for actual production
A favourable material usage variance arises when actual quantity used is less than the standard quantity allowed for the actual production level. It is calculated as (Standard quantity for actual output − Actual quantity used) × Standard price. Price differences are captured separately in the material price variance.
Which of the following is a characteristic of a cost centre?
Answer: The manager is responsible for costs only
A cost centre is a responsibility centre where the manager is accountable only for controllable costs. Revenue responsibility is added in a revenue centre or profit centre, while investment responsibility is added in an investment centre.
A company has a target profit of £80,000, fixed costs of £120,000, and a contribution to sales ratio of 40%. What level of sales revenue is needed to achieve the target profit?
Answer: £500,000
Required sales = (Fixed costs + Target profit) / C/S ratio = (£120,000 + £80,000) / 0.40 = £200,000 / 0.40 = £500,000. The C/S ratio tells us that for every £1 of sales, £0.40 contributes towards covering fixed costs and profit.
In the context of transfer pricing, which of the following is the most appropriate transfer price when there is a perfectly competitive external market for the intermediate product?
Answer: Market price
When a perfectly competitive external market exists, the market price is the optimal transfer price. It ensures goal congruence (divisional decisions align with company-wide interests), provides a fair measure of divisional performance, and preserves divisional autonomy. Neither division is disadvantaged compared to trading externally.