ACCA Management Accounting 5

Question 1

In decision-making under uncertainty, which technique assigns probabilities to different outcomes to calculate an expected value?

Accepted Answer

Expected value analysis

Answer

Expected value analysis weights each possible outcome by its probability and sums the results to give a single decision criterion.

Question 2

A company is deciding whether to make or buy a component. The relevant costs for the make-or-buy decision include:

Accepted Answer

Incremental costs of making plus any opportunity costs of the resources used

Answer

Relevant costs in a make-or-buy decision are the incremental (avoidable) costs of making plus any opportunity cost of the resources that would be freed up.

Question 3

Transfer pricing between divisions of the same organization is primarily used to:

Accepted Answer

Evaluate divisional performance and motivate divisional managers

Answer

Transfer prices affect the reported profit of each division, so they directly influence how divisional performance is measured and how managers are motivated.

Question 4

Return on Investment (ROI) for a division is calculated as:

Accepted Answer

Controllable profit ÷ controllable net assets × 100%

Answer

Divisional ROI = controllable (divisional) profit ÷ controllable net assets × 100%, focusing only on factors within the manager's control.

Question 5

Which of the following statements about Residual Income (RI) is CORRECT compared to ROI?

Accepted Answer

RI encourages acceptance of any project that earns above the cost of capital

Answer

RI = controllable profit − (cost of capital × net assets); any project earning more than the cost of capital increases RI, aligning divisional and company goals.

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA Management Accounting 5