ACCA SP Advanced Performance Management (APM)

Question 1

A company uses Economic Value Added (EVA) to measure divisional performance.
Division A has a net operating profit after tax (NOPAT) of £2.5 million and capital employed of £15 million.
The company's WACC is 12%.
What is Division A's EVA?

Accepted Answer

£0.7 million

Answer

£0.5 million

Answer

£0.3 million

Answer

£1.0 million

Question 2

In the context of transfer pricing, which of the following methods is MOST likely to lead to sub-optimal decision-making from the group's perspective?

Accepted Answer

Full cost-plus transfer price when there is no external market

Answer

Market-based transfer price when a perfect external market exists

Answer

Marginal cost transfer price when the supplying division has spare capacity

Answer

Negotiated transfer price between willing divisional managers

Question 3

A hospital uses the building block model (Fitzgerald and Moon) to measure performance. Which of the following dimensions measures service outcomes rather than processes?

Accepted Answer

Competitiveness

Answer

Resource utilisation

Answer

Innovation

Answer

Flexibility

Question 4

Which of the following BEST describes the concept of 'beyond budgeting'?

Accepted Answer

Replacing fixed annual budgets with adaptive management processes using rolling forecasts and relative targets

Answer

Preparing budgets using zero-based principles rather than incremental methods

Answer

Extending the budget period from one year to three or five years

Answer

Using activity-based costing to prepare more accurate departmental budgets

Question 5

A manufacturing company discovers that 80% of its quality costs are 'failure costs' (internal and external). According to the total quality management (TQM) approach, the company should:

Accepted Answer

Increase spending on prevention and appraisal to reduce total quality costs

Answer

Accept failure costs as inevitable in manufacturing

Answer

Reduce inspection to lower appraisal costs and overall quality spend

Answer

Outsource manufacturing to eliminate quality costs entirely

Question 6

A company evaluates its managers using Return on Investment (ROI). A division manager rejects a project with a 15% return because the division's current ROI is 20%. The company's cost of capital is 10%. This demonstrates which weakness of ROI?

Accepted Answer

ROI encourages dysfunctional behaviour by incentivising managers to reject projects that exceed the cost of capital but reduce divisional ROI

Answer

ROI does not account for the time value of money

Answer

ROI cannot be compared across divisions of different sizes

Answer

ROI ignores non-financial performance measures