PM E Performance measurement and control

Written by Mahnoor Sheikh (ACCA)

ACCA · Performance Management · 10 questions

Name: ____________________ Date: ____________

A division earns profit of $180,000 on capital employed of $1,000,000. What is the ROI?
- A 1.8%
- B 18%
- C 5.6%
- D 12%
A division earns profit of $180,000 on capital employed of $1,000,000 and the required return is 12 percent. What is the residual income?
- A $180,000
- B $300,000
- C $60,000
- D $120,000
Why might ROI discourage a manager from investing in a project?
- A The project's return may be above the cost of capital but below the division's current ROI
- B ROI ignores profit
- C It rewards high capital employed
- D It is not a percentage
A division has spare capacity. The marginal cost of an item is $14 and it sells outside for $22. What is the minimum transfer price?
- A $22
- B $14
- C $36
- D $8
Which is the best basis for a transfer price when there is a competitive external market?
- A Zero
- B Full cost plus 50 percent
- C The market price
- D The buyer's choice
What is goal congruence?
- A Managers' actions are aligned with the goals of the whole organisation
- B All managers have the same pay
- C All divisions have the same profit
- D The budget is always met
Which three Es form the basis of value for money?
- A Economy, efficiency and effectiveness
- B Earnings, equity and expansion
- C Efficiency, evaluation and expenditure
- D Economy, equity and ethics
Which of these is an additional issue in transfer pricing for a multinational group?
- A All countries have identical rules
- B There are no tax authorities
- C Only one currency is used
- D Differences in tax rates and exchange controls between countries
Which perspective of the balanced scorecard includes learning and innovation measures?
- A Financial
- B Innovation and learning
- C Customer
- D Internal business process
Which is a problem in measuring performance in a public sector organisation?
- A Objectives are many and may conflict, and outputs are hard to measure
- B There are no stakeholders
- C Costs are never important
- D Profit is easy to measure

Answer key

1. B, 2. C, 3. A, 4. B, 5. C, 6. A, 7. A, 8. D, 9. B, 10. A

ROI = profit / capital employed.
RI = 180,000 - (12% x 1,000,000) = 60,000.
This can lead to decisions that are not best for the whole group.
With spare capacity there is no opportunity cost, so the minimum is marginal cost.
Market prices give a fair and objective basis.
A good transfer price encourages goal congruence.
They are used where profit cannot be the main measure.
Tax authorities look at whether prices are at arm's length.
It covers the ability to improve and create future value.
Public sector aims are often social, so profit is not the main measure.