ACCA PM · Chapter 13
Performance measurement and control MCQs with Answers
11 multiple-choice questions on Performance measurement and control for ACCA PM Performance Management. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
A company has current assets of $240,000, of which inventory is $90,000, and current liabilities of $150,000. What is its quick (acid test) ratio?
- A) 1.6
- B) 0.6
- C) 1.0
- D) 2.2
Show answer & explanation
Answer: C) 1.0
Quick ratio = (current assets - inventory) / current liabilities = ($240,000 - $90,000) / $150,000 = 1.0. The current ratio, which includes inventory, would be 1.6.
Question 2
In Fitzgerald and Moon's building block model, the dimensions of performance are divided into results and determinants. Which of the following is a RESULTS dimension?
- A) Quality of service
- B) Flexibility
- C) Competitiveness
- D) Resource utilisation
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Answer: C) Competitiveness
The results dimensions are financial performance and competitiveness; they show the outcome of past decisions. The determinants are quality of service, flexibility, resource utilisation and innovation, which drive future results.
Question 3
A company using a balanced scorecard measures 'the percentage of revenue generated by products launched in the last two years'. Under which perspective would this measure most appropriately fall?
- A) Financial perspective
- B) Learning and growth (innovation) perspective
- C) Customer perspective
- D) Internal business process perspective
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Answer: B) Learning and growth (innovation) perspective
The learning and growth perspective asks whether the organisation can continue to improve and create value, including through innovation. Revenue from new products measures the success of innovation. The financial perspective would use measures such as ROCE, and the customer perspective measures such as market share or satisfaction.
Question 4
In Fitzgerald and Moon's building block model, which of the following is one of the three characteristics that the 'standards' building block requires?
- A) Clarity
- B) Flexibility
- C) Competitiveness
- D) Ownership
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Answer: D) Ownership
The standards block requires ownership (managers accept the standards), achievability (they can be reached) and equity (they are fair across business units). Clarity belongs to the rewards block, along with motivation and controllability. Flexibility and competitiveness are dimensions of performance.
Question 5
A company has trade receivables of $82,000. Annual sales are $800,000, of which $730,000 are on credit and $70,000 are for cash. What is the trade receivables collection period (using a 365-day year)?
- A) 37.4 days
- B) 40.4 days
- C) 36.9 days
- D) 41 days
Show answer & explanation
Answer: D) 41 days
Receivables collection period = (trade receivables / credit sales) x 365 = ($82,000 / $730,000) x 365 = 41 days. Only credit sales create receivables: using total sales gives 37.4 days, a 360-day year gives 40.4 days, and both errors together give 36.9 days.
Question 6
A company has operating profit of $180,000, revenue of $900,000 and capital employed of $1,200,000. What is its return on capital employed (ROCE)?
- A) 20%
- B) 75%
- C) 15%
- D) 60%
Show answer & explanation
Answer: C) 15%
ROCE = operating profit / capital employed = $180,000 / $1,200,000 = 15%. This equals the operating profit margin (20%) multiplied by asset turnover (0.75 times).
Question 7
A company's operating profit margin is 12% and its ROCE is 18%. Revenue is $3,000,000. What is the company's capital employed?
- A) $2,000,000
- B) $4,500,000
- C) $360,000
- D) $540,000
Show answer & explanation
Answer: A) $2,000,000
ROCE = margin x asset turnover, so asset turnover = 18% / 12% = 1.5 times. Capital employed = revenue / asset turnover = $3,000,000 / 1.5 = $2,000,000. Check: operating profit = 12% x $3,000,000 = $360,000, and $360,000 / $2,000,000 = 18%.
Question 8
A public hospital reports that its cost per patient treated has fallen while the number and quality of treatments have been maintained. Which element of value for money does this best demonstrate?
- A) Economy
- B) Efficiency
- C) Effectiveness
- D) Equity
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Answer: B) Efficiency
Efficiency is the relationship between outputs and inputs, so a lower cost per patient treated shows more output per $ of resource. Economy concerns obtaining inputs at the lowest cost, and effectiveness concerns achieving objectives or outcomes.
Question 9
A local government wants to measure the EFFECTIVENESS of its adult literacy programme. Which of the following measures is most appropriate?
- A) The cost per hour of tutoring purchased
- B) The number of participants taught per tutor
- C) The amount spent on teaching materials compared with budget
- D) The percentage of participants who reach the target reading standard
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Answer: D) The percentage of participants who reach the target reading standard
Effectiveness is about whether the programme achieves its objectives, here improving literacy, so the proportion reaching the target standard is the best measure. Cost per tutoring hour measures economy, participants per tutor measures efficiency, and spend against budget is a financial control measure.
Question 10
Which of the following is a particular difficulty in measuring the performance of not-for-profit organisations?
- A) They have no costs that can be measured
- B) Their performance can be fully captured by profit
- C) They often have multiple objectives whose outputs are hard to quantify in money terms
- D) They are not accountable to any stakeholders
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Answer: C) They often have multiple objectives whose outputs are hard to quantify in money terms
Not-for-profit organisations usually pursue several, sometimes conflicting, non-financial objectives, such as health, education or social outcomes, which are difficult to measure and value. Profit is not their aim, so value-for-money measures are used, and they are accountable to many stakeholders such as funders and the public.
Question 11
A divisional manager cuts the staff training budget and delays machine maintenance in order to meet this year's profit target. Which of the following is most likely to reduce this kind of behaviour?
- A) Increasing the bonus linked solely to annual profit
- B) Assessing performance using a range of financial and non-financial measures, including long-term indicators
- C) Evaluating the manager only on monthly cost variances
- D) Removing all performance targets from the reward system
Show answer & explanation
Answer: B) Assessing performance using a range of financial and non-financial measures, including long-term indicators
Cutting discretionary spending to boost short-term profit is short-termism. Using a broader set of measures, such as staff development, quality and customer satisfaction, and linking rewards to longer-term performance, reduces the incentive. Stronger links to annual profit or to short-term cost variances would make the problem worse.