ACCA AS Performance Management (PM) 2

Question 1

Which of the following best describes throughput accounting's definition of 'throughput contribution'?

Accepted Answer

Sales revenue minus direct material costs only

Answer

In throughput accounting (Theory of Constraints), throughput contribution is defined as sales revenue minus totally variable costs, which in practice is usually only direct material costs. Labour and overheads are treated as fixed 'operating expenses' because they cannot be varied in the short term.

Question 2

A learning curve of 80% means that each time cumulative output doubles, the cumulative average time per unit:

Accepted Answer

Decreases to 80% of the previous cumulative average

Answer

An 80% learning curve means that each time cumulative production doubles, the cumulative average time per unit falls to 80% of its previous level. For example, if the first unit takes 100 hours, the cumulative average after 2 units is 80 hours, after 4 units is 64 hours (80% × 80), and so on.

Question 3

Which of the following variances would be the responsibility of the purchasing manager?

Accepted Answer

Material price variance

Answer

The material price variance (Standard price − Actual price) × Actual quantity is typically the responsibility of the purchasing manager, as they negotiate prices and select suppliers. The usage variance is usually the production manager's responsibility, as it relates to how efficiently materials are used in production.

Question 4

What is the main limitation of Return on Investment (ROI) as a divisional performance measure?

Accepted Answer

It may lead managers to reject projects that exceed the company's cost of capital but reduce divisional ROI

Answer

ROI can lead to dysfunctional decision-making. A division with a current ROI of 25% would reject a project earning 18% ROI even if the company's cost of capital is only 12%. This is because accepting the project would reduce the division's overall ROI, even though it creates value for the company. Residual income (RI) overcomes this problem.

Question 5

In activity-based costing (ABC), what is a cost driver?

Accepted Answer

A factor that causes the cost of an activity to change

Answer

A cost driver is the factor that most directly causes or influences the level of cost for a particular activity. For example, the number of purchase orders drives purchasing activity costs, and the number of machine set-ups drives set-up costs. ABC uses cost drivers to allocate overhead costs more accurately than traditional volume-based methods.

ACCA Applied Skills Practice Test

ACCA Applied Skills Practice Test

ACCA AS Performance Management (PM) 2