PM: Performance Management

• Topic 01

  Information, Technology and Systems

  264 questions
• Topic 02

  Specialist Cost and Management Accounting Techniques

  246 questions
• Topic 03

  Decision-Making Techniques

  228 questions
• Topic 04

  Budgeting and Control

  255 questions
• Topic 05

  Performance Measurement and Control

  251 questions

A few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.

1. In the ABC cost hierarchy, which of the following is an example of a batch-level activity?

   • A
     Direct material costs consumed by each unit of production
   • B
     CEO salary costs that cannot be traced to any specific product
   • C
     Direct machining costs incurred for every individual unit produced
   • D
     Machine set-up costs incurred each time a production batch is started, regardless of the number of units in the batch
     Correct answer
   Explanation

   The ABC cost hierarchy classifies activities into four levels. Batch-level activities are performed once for each batch of production, regardless of the number of units in the batch. Machine set-ups are a classic example — the cost is the same whether the batch contains 10 units or 1,000 units. This contrasts with unit-level activities (performed for each unit), product-sustaining activities (supporting a product line), and facility-sustaining activities (supporting the organisation as a whole).

2. A multinational manufacturer has implemented an ERP system across its five production plants in different countries. While data integration has improved, the implementation has taken 18 months longer than planned, cost 40% more than budgeted, and several plant managers report that the standardised processes imposed by the ERP do not fit their local operating conditions. Which statement best explains the difficulties experienced?

   • A
     ERP implementations involve significant complexity including process standardisation that may conflict with local practices, extensive data migration, staff retraining, and scope creep — all of which commonly lead to cost and time overruns
     Correct answer
   • B
     The difficulties indicate that ERP systems are unsuitable for multinational organisations and the company should revert to standalone systems
   • C
     The difficulties are caused entirely by the ERP vendor providing defective software rather than any organisational factors
   • D
     ERP systems always deliver benefits that exceed their costs, so the additional expenditure should not be a concern to management
   Explanation

   ERP implementation in a multinational organisation is inherently complex. The difficulties described — cost overruns, time delays, and conflict between standardised ERP processes and local operating conditions — are well-documented risks of ERP implementation. Process standardisation is a core ERP characteristic, but it can conflict with local practices, requiring either customisation (which adds cost and complexity) or changes to local processes (which creates resistance). Data migration, staff retraining, and scope creep are additional common causes of cost and time overruns. This illustrates why candidates must evaluate both costs and benefits of ERP rather than assuming implementation is always straightforward.

3. A manufacturing company has unlimited access to materials and labour but faces a constraint on machine capacity. How does this affect the budget preparation sequence?

   • A
     The company should prepare the capital expenditure budget first to acquire additional machines, and then follow the normal sequence starting with the sales budget
   • B
     The budget preparation sequence is unaffected because machine capacity is a fixed cost and does not influence the order of budget preparation
   • C
     Machine capacity becomes the principal budget factor. The budget must start by determining the maximum output achievable within the machine capacity constraint, and all other budgets are built from this production limit rather than from sales demand
     Correct answer
   • D
     Machine capacity affects only the overhead budget and has no impact on the order in which other functional budgets are prepared
   Explanation

   When machine capacity is the limiting factor rather than sales demand, the budget process must start with the production budget constrained by available machine hours. This determines the maximum output, which in turn limits the sales budget (the company cannot sell more than it can produce). All other functional budgets then flow from this constrained production plan. The key principle is that the budget must always start with the principal budget factor — whatever constrains the organisation's overall activity level.

• acca

  ACCA PM (Performance Management): How to Pass the Hardest Applied Skills Paper

  2025-12-29