ACCA Advanced Performance Management 3 — Questions and Answers
Question 1: Which costing technique assigns overhead costs to products based on the activities that consume those resources?
- Marginal costing
- Absorption costing
- Activity-based costing (Correct answer)
- Throughput costing
Correct answer: Activity-based costing
Activity-based costing (ABC) traces overhead to cost objects via activities and cost drivers, providing more accurate product costs than traditional absorption costing.
Question 2: In a Tier 1 risk assessment under COSO ERM, which category of risk relates to the reliability of financial reporting?
- Strategic risk
- Operational risk
- Reporting risk (Correct answer)
- Compliance risk
Correct answer: Reporting risk
COSO ERM's reporting objective category addresses risks affecting the accuracy, completeness, and reliability of internal and external financial reporting.
Question 3: A company's throughput accounting ratio (TAR) for a product is 0.75. What does this indicate?
- The product earns $0.75 for every $1 of factory cost
- The product's throughput contribution does not cover its total factory cost (Correct answer)
- The product generates 75% gross margin
- The product uses 75% of the binding constraint's capacity
Correct answer: The product's throughput contribution does not cover its total factory cost
A TAR below 1.0 means the product's throughput (sales minus totally variable costs) is less than the total factory cost, suggesting the product is not worth making at current pricing or volume.
Question 4: Which strategic analysis framework evaluates a company's position using the dimensions of competitive advantage and competitive scope?
- PESTEL analysis
- Porter's Generic Strategies (Correct answer)
- Ansoff Matrix
- McKinsey 7-S Framework
Correct answer: Porter's Generic Strategies
Porter's Generic Strategies (cost leadership, differentiation, and focus) are defined along the axes of competitive advantage (cost or differentiation) and competitive scope (broad or narrow).
Question 5: Under the ACCA APM syllabus, which reward system characteristic is described as 'line of sight'?
- Employees' ability to understand how their actions affect the reward metric (Correct answer)
- The transparency of the reward formula to external stakeholders
- The legal enforceability of a bonus contract
- The time lag between performance and payment
Correct answer: Employees' ability to understand how their actions affect the reward metric
Line of sight refers to whether employees can clearly see and understand the connection between their individual actions and the performance measures that drive their reward.
Question 6: A multinational sets its transfer price at arm's length using the comparable uncontrolled price (CUP) method. What is the primary regulatory reason for this approach?
- To minimize global tax liability by shifting profits to low-tax jurisdictions
- To comply with OECD transfer pricing guidelines and avoid tax authority disputes (Correct answer)
- To simplify internal bookkeeping across subsidiaries
- To maximize the selling division's reported profit
Correct answer: To comply with OECD transfer pricing guidelines and avoid tax authority disputes
OECD guidelines require related-party transactions to be priced as if between independent parties; the CUP method directly compares prices to arm's length comparable transactions, reducing audit risk.
Question 7: Which of the following BEST describes a 'lag indicator' in a performance measurement system?
- A measure that predicts future performance outcomes
- A measure of past performance that confirms a trend has occurred (Correct answer)
- A target set at the beginning of the planning period
- A non-financial measure of customer satisfaction
Correct answer: A measure of past performance that confirms a trend has occurred
Lag indicators, such as annual revenue or profit, confirm results after the fact and reflect what has already happened, contrasting with lead indicators that predict future outcomes.
ACCA Advanced Performance Management 3
Which costing technique assigns overhead costs to products based on the activities that consume those resources?