ACCA MA · Chapter 14
Performance measurement MCQs with Answers
11 multiple-choice questions on Performance measurement for ACCA MA Management Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
A division made an operating profit of $180,000 and has capital employed of $1,200,000. What is its return on investment (ROI)?
- A) 15.0%
- B) 6.7%
- C) 12.0%
- D) 18.0%
Show answer & explanation
Answer: A) 15.0%
ROI = profit / capital employed x 100 = 180,000 / 1,200,000 x 100 = 15.0%.
Question 2
A division made an operating profit of $180,000 on capital employed of $1,200,000. The company's cost of capital is 12%. What is the division's residual income (RI)?
- A) $36,000
- B) $144,000
- C) $21,600
- D) $180,000
Show answer & explanation
Answer: A) $36,000
RI = profit - (capital employed x cost of capital) = 180,000 - (1,200,000 x 12%) = 180,000 - 144,000 = $36,000.
Question 3
A division currently earns an ROI of 20%, and the company's cost of capital is 12%. The divisional manager is offered a project with an expected ROI of 16%. If the manager is assessed on divisional ROI, which of the following is most likely?
- A) The manager will accept the project, because its ROI is higher than the cost of capital
- B) The manager will reject the project, and this is the correct decision for the company
- C) The manager will be indifferent, because ROI and residual income always lead to the same decision
- D) The manager will reject the project, even though it would increase residual income and benefit the company
Show answer & explanation
Answer: D) The manager will reject the project, even though it would increase residual income and benefit the company
The project's 16% return is higher than the 12% cost of capital, so it gives a positive residual income and is good for the company. However, it would bring the division's ROI down from 20%, so a manager judged on ROI is likely to reject it. This kind of dysfunctional decision is a well-known weakness of ROI; RI avoids it.
Question 4
Which of the following is NOT one of the four perspectives of the balanced scorecard?
- A) Customer perspective
- B) Internal business process perspective
- C) Innovation and learning perspective
- D) Competitor perspective
Show answer & explanation
Answer: D) Competitor perspective
The balanced scorecard measures performance from four perspectives: financial, customer, internal business process, and innovation and learning. Competitors are considered within these (for example market share under the customer perspective), but there is no separate competitor perspective.
Question 5
Under which balanced scorecard perspective would 'percentage of sales from products launched in the last two years' most appropriately be reported?
- A) Financial
- B) Customer
- C) Innovation and learning
- D) Internal business process
Show answer & explanation
Answer: C) Innovation and learning
The innovation and learning perspective asks whether the organisation can keep improving and creating value. The share of revenue from recently launched products measures how successfully it develops new products, so it belongs under innovation and learning.
Question 6
A company has revenue of $2,400,000, operating profit of $300,000 and capital employed of $1,500,000. What is its asset turnover?
- A) 0.625 times
- B) 1.6 times
- C) 8.0 times
- D) 5.0 times
Show answer & explanation
Answer: B) 1.6 times
Asset turnover = revenue / capital employed = 2,400,000 / 1,500,000 = 1.6 times. As a check, ROCE (20%) = operating margin (300,000 / 2,400,000 = 12.5%) x asset turnover (1.6).
Question 7
A company has inventory of $80,000, trade receivables of $120,000, cash of $20,000 and current liabilities of $110,000. What is its quick (acid test) ratio?
- A) 2.00 : 1
- B) 1.09 : 1
- C) 0.73 : 1
- D) 1.27 : 1
Show answer & explanation
Answer: D) 1.27 : 1
Quick ratio = (current assets - inventory) / current liabilities = (120,000 + 20,000) / 110,000 = 140,000 / 110,000 = 1.27 : 1. Including inventory gives the current ratio of 220,000 / 110,000 = 2.00 : 1.
Question 8
A company has trade receivables of $120,000. Its total annual sales are $1,825,000, of which $1,460,000 are on credit. What is the trade receivables collection period, based on a 365-day year?
- A) 30 days
- B) 12 days
- C) 45 days
- D) 24 days
Show answer & explanation
Answer: A) 30 days
The collection period uses credit sales only, because cash sales never create receivables. Receivables collection period = trade receivables / credit sales x 365 = 120,000 / 1,460,000 x 365 = 30 days. Using total sales gives 120,000 / 1,825,000 x 365 = 24 days, and 12 is the receivables turnover (1,460,000 / 120,000 = 12.2 times), not a number of days.
Question 9
Which of the following is a non-financial performance indicator for a hotel?
- A) Revenue per available room
- B) Gross profit margin
- C) Room occupancy rate
- D) Return on capital employed
Show answer & explanation
Answer: C) Room occupancy rate
Room occupancy rate (the percentage of available rooms that are occupied) is measured in physical terms, not money. Revenue per available room, gross profit margin and ROCE are all financial measures.
Question 10
A division has net assets of $1,600,000 and annual profit of $240,000. It is considering an investment of $400,000 that would generate an extra annual profit of $56,000. The company's cost of capital is 12%. If the investment goes ahead, which of the following is correct?
- A) Divisional ROI falls to 14.8%, and divisional residual income falls by $8,000
- B) Divisional ROI falls to 14.8%, but divisional residual income rises by $8,000
- C) Divisional ROI rises to 18.5%, and divisional residual income rises by $8,000
- D) Divisional ROI falls to 14.0%, and divisional residual income rises by $56,000
Show answer & explanation
Answer: B) Divisional ROI falls to 14.8%, but divisional residual income rises by $8,000
Current ROI = 240,000 / 1,600,000 = 15.0%. New ROI = (240,000 + 56,000) / (1,600,000 + 400,000) = 296,000 / 2,000,000 = 14.8%. Project RI = 56,000 - (400,000 x 12%) = 56,000 - 48,000 = $8,000, so divisional RI rises from 48,000 to 56,000, an increase of $8,000. 18.5% wrongly leaves the new assets out of the denominator.
Question 11
In assessing value for money in a public sector organisation, what does 'economy' mean?
- A) Getting the maximum output from the resources used
- B) Achieving the organisation's objectives
- C) Making sure that services are provided fairly to all groups
- D) Obtaining inputs of the right quality at the lowest cost
Show answer & explanation
Answer: D) Obtaining inputs of the right quality at the lowest cost
Value for money is assessed using the 3Es. Economy concerns the cost of inputs (spending less). Efficiency is the relationship between inputs and outputs (spending well). Effectiveness is whether objectives are achieved (spending wisely).