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PM C Decision-making techniques

Written by Mahnoor Sheikh (ACCA)

16 ACCA Performance Management questions with answers and explanations.

Printable worksheet with answer key

All questions with answers
  1. A product mix is 2 units of A (contribution $8) to 1 unit of B (contribution $12). Fixed costs are $56,000. What are the total break-even units for the mix?

    • 1 5,600 units
    • 2 4,667 units
    • 3 6,000 units
    • 4 7,000 units
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    Correct answer: 6,000 units

    Average contribution = (2 x 8 + 1 x 12) / 3 = $9.33. Break-even = 56,000 / 9.33.

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  2. Product X earns $12 contribution using 2 hours of the scarce resource and product Y earns $15 using 3 hours. Which should be made first?

    • 1 X, at $6 an hour
    • 2 Y, at $5 an hour
    • 3 Y, at $15 a unit
    • 4 Both equally
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    Correct answer: X, at $6 an hour

    Rank by contribution per unit of the scarce resource.

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  3. With two or more scarce resources, the best production plan is usually found by:

    • 1 Simple ranking by contribution per unit
    • 2 Variance analysis
    • 3 Linear programming
    • 4 Break-even analysis
    Show answer

    Correct answer: Linear programming

    The optimum lies at a corner of the feasible region.

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  4. What is the shadow price of a scarce resource?

    • 1 The extra contribution from one more unit of the resource
    • 2 The market price of the resource
    • 3 The cost of the resource per unit
    • 4 The total contribution from all of the resource
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    Correct answer: The extra contribution from one more unit of the resource

    It shows the most worth paying for extra units.

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  5. A 4 percent rise in price cuts quantity demanded by 10 percent. What is the price elasticity of demand?

    • 1 2.5
    • 2 -14
    • 3 -2.5
    • 4 -0.4
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    Correct answer: -2.5

    -10 / 4 = -2.5, so demand is elastic.

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  6. Profit is maximised where:

    • 1 Total revenue is highest
    • 2 Marginal revenue is zero
    • 3 Price equals average cost
    • 4 Marginal revenue equals marginal cost
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    Correct answer: Marginal revenue equals marginal cost

    At that quantity, the next unit adds as much to cost as to revenue.

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  7. Demand is P = 100 - 0.02Q and marginal cost is $20. What is the profit-maximising price?

    • 1 $20
    • 2 $100
    • 3 $60
    • 4 $80
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    Correct answer: $60

    MR = 100 - 0.04Q = 20, so Q = 2,000 and P = 100 - 40 = 60.

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  8. A new product is launched at a high price which is later lowered. This is:

    • 1 Cost-plus pricing
    • 2 Market skimming
    • 3 Market penetration
    • 4 Loss leader pricing
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    Correct answer: Market skimming

    Skimming takes high margins from early buyers.

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  9. A division is at full capacity. The marginal cost of an item is $14 and it can be sold outside for $22. What is the minimum transfer price?

    • 1 $14
    • 2 $8
    • 3 $22
    • 4 $36
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    Correct answer: $22

    Minimum = marginal cost plus opportunity cost = 14 + 8.

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  10. A company has spare capacity and receives a special order. Which costs are relevant?

    • 1 Fixed overheads absorbed
    • 2 All production costs
    • 3 Costs already incurred
    • 4 Only the extra costs caused by the order
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    Correct answer: Only the extra costs caused by the order

    Fixed costs that do not change are not relevant.

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  11. Payoffs for three plans in a good, medium and poor market are A: 120, 80, 20; B: 90, 70, 50; C: 60, 60, 60. Which plan does maximin choose?

    • 1 C
    • 2 A
    • 3 B
    • 4 None of them
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    Correct answer: C

    Maximin chooses the best of the worst outcomes: C gives 60.

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  12. Using the same payoffs (A: 120, 80, 20; B: 90, 70, 50; C: 60, 60, 60), which plan does maximax choose?

    • 1 A
    • 2 B
    • 3 C
    • 4 None of them
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    Correct answer: A

    Maximax picks the highest possible payoff, which is 120 for A.

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  13. Payoffs for three plans are A: 120, 80, 20; B: 90, 70, 50; C: 60, 60, 60. Which plan does the minimax regret rule choose?

    • 1 B
    • 2 A
    • 3 C
    • 4 None of them
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    Correct answer: B

    The largest regrets are A 40, B 30 and C 60, so B has the smallest.

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  14. The probabilities of a good, medium and poor market are 0.3, 0.5 and 0.2. Plan A pays 120, 80 and 20. What is the expected value of plan A?

    • 1 60
    • 2 40
    • 3 73
    • 4 80
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    Correct answer: 80

    0.3 x 120 + 0.5 x 80 + 0.2 x 20 = 36 + 40 + 4 = 80.

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  15. The expected value with perfect information is 88 and the best expected value without it is 80. What is the value of perfect information?

    • 1 80
    • 2 88
    • 3 168
    • 4 8
    Show answer

    Correct answer: 8

    88 - 80.

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  16. What does sensitivity analysis show?

    • 1 The probability of each outcome
    • 2 The best decision in every case
    • 3 How far a variable can change before the decision changes
    • 4 The cost of a project
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    Correct answer: How far a variable can change before the decision changes

    It tests the effect of changes in key variables.

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