1. A division has profit before interest of CU 240,000 and capital employed of CU 1,200,000. The cost of capital is 12%. What is the residual income?

A) CU 8,000
B) CU 144,000
C) CU 240,000
D) CU 96,000

Correct: D difficult Divisional performance

Imputed interest = 12% x 1,200,000 = CU 144,000. Residual income = 240,000 - 144,000 = CU 96,000. If you answered CU 144,000 you gave the imputed interest. If you answered CU 240,000 you gave the profit before the capital charge. If you answered CU 8,000 you divided the difference by 12.

2. A division earns profit of CU 150,000 on capital employed of CU 1,000,000. It is offered a project requiring CU 200,000 that will earn CU 24,000 a year. What will the divisional ROI be if the project is accepted?

A) 12.0%
B) 15.0%
C) 14.5%
D) 17.4%

Correct: C difficult Divisional performance

New ROI = (150,000 + 24,000) / (1,000,000 + 200,000) = 14.5%. The project ROI of 12% is below the existing 15%, so it dilutes the average. If you answered 12.0% you gave the project's own ROI. If you answered 15.0% you gave the current ROI. If you answered 17.4% you added the project profit but ignored the extra capital employed (174,000 / 1,000,000).

3. Using the data from the division above (cost of capital 10%), what is the effect on divisional residual income if the CU 200,000 project earning CU 24,000 is accepted?

A) A decrease of CU 4,000
B) An increase of CU 24,000
C) An increase of CU 4,000
D) No change

Correct: C difficult Divisional performance

The project earns CU 24,000 and the capital charge is 10% x 200,000 = CU 20,000, so residual income rises by CU 4,000. Under ROI the manager would reject the project (14.5% < 15%), but under RI the manager would accept it, which is better for the group (project return 12% exceeds the 10% cost of capital).

4. Which of the following statements about ROI and residual income are correct? (1) Residual income is more likely to encourage goal congruence than ROI. (2) ROI is a percentage and takes no account of the absolute size of the investment. (3) Residual income is a percentage return.

A) (1) and (3) only
B) (2) and (3) only
C) (1), (2) and (3)
D) (1) and (2) only

Correct: D difficult Divisional performance

Managers judged on ROI may reject projects that earn more than the cost of capital but less than the existing ROI, whereas RI avoids this (1). ROI is a ratio and does not show the scale of the profit (2). Residual income is an absolute amount, not a percentage (3).

5. Divisional ROI is 18% and the profit margin is 6%. What is the asset turnover?

A) 3.0 times
B) 0.33 times
C) 1.08 times
D) 12.0 times

Correct: A difficult Divisional performance

ROI = profit margin x asset turnover, so asset turnover = 18% / 6% = 3.0 times. If you answered 0.33 you divided the margin by the ROI. If you answered 1.08 you multiplied the percentages (18 x 6 / 100). If you answered 12.0 you subtracted the percentages.

6. Which of the following correctly matches a performance measure with a balanced scorecard perspective?

A) Customer retention rate: learning and growth perspective
B) Average order-processing time: internal business process perspective
C) Staff training days per employee: customer perspective
D) Revenue growth: internal business process perspective

Correct: B difficult Balanced scorecard

Order-processing time measures how well internal processes work. Customer retention belongs to the customer perspective, staff training to learning and growth, and revenue growth to the financial perspective.

7. Which statements about the balanced scorecard are correct? (1) It includes non-financial as well as financial measures. (2) It looks at performance from several perspectives. (3) It can be used only by profit centres.

A) (1) only
B) (2) and (3) only
C) (1) and (2) only
D) (1), (2) and (3)

Correct: C difficult Balanced scorecard

The balanced scorecard combines financial and non-financial measures across several perspectives, usually financial, customer, internal process and learning and growth. It can be applied across the organisation, not only to profit centres.

8. A cost centre budget for 10,000 units is CU 80,000, of which CU 30,000 is fixed. Actual output was 11,000 units at a cost of CU 87,500. What is the variance against the flexed budget?

A) CU 2,500 favourable
B) CU 2,500 adverse
C) CU 5,000 adverse
D) CU 7,500 adverse

Correct: B difficult Budgetary control

Variable cost = 50,000 / 10,000 = CU 5 per unit. Flexed budget = 30,000 + 11,000 x 5 = CU 85,000. Actual cost is CU 87,500, so the variance is CU 2,500 adverse. If you answered CU 7,500 adverse you compared actual cost with the fixed budget of CU 80,000. If you answered CU 5,000 adverse you compared the flexed variable cost only (55,000 against 50,000). If you answered CU 2,500 favourable you reversed the sign.

9. A factory emitted 840 tonnes of CO2e for 12,000 units of output. The target is 0.06 tonnes per unit. If output stays at 12,000 units, by how many tonnes must emissions fall to meet the target?

A) 10 tonnes
B) 120 tonnes
C) 720 tonnes
D) 840 tonnes

Correct: B difficult Sustainability

Current intensity = 840 / 12,000 = 0.07 t per unit. Target emissions = 0.06 x 12,000 = 720 t. Reduction needed = 840 - 720 = 120 t. If you answered 720 you gave the target total. If you answered 840 you gave the current total. If you answered 10 you took the difference per thousand units.

10. A company reviews customer satisfaction using survey responses from current customers only. What type of data bias is most likely?

A) Confirmation bias, because the analyst expects satisfaction to be high
B) Anchoring, because the first survey result is used as a reference
C) Recall bias, because customers cannot remember past purchases
D) Survivorship bias, because customers who have left are excluded from the sample

Correct: D difficult Performance management data

Using only current customers ignores those who have already left, so the sample shows only 'survivors' and overstates satisfaction. Confirmation bias concerns seeking evidence that supports expectations; anchoring and recall are different effects.

11. Which TWO of the following are potential risks of cloud accounting? (1) Outage of the provider's service (2) Real-time access to data (3) Security and privacy of data held on third-party servers (4) Automatic software updates

A) (1) and (2)
B) (1) and (3)
C) (2) and (4)
D) (3) and (4)

Correct: B difficult Cloud accounting

Dependence on the provider's availability and the protection of data held by a third party are risks. Real-time access and automatic updates are benefits (though updates can also create change risk).

12. Which of the following is a relative merit of a shared service centre for management information?

A) Economies of scale and consistent processes, but with a risk that local business knowledge is lost
B) Lower costs in every case, because no investment is needed
C) Better local knowledge, because staff work in each business unit
D) Complete removal of the need for internal controls

Correct: A difficult Shared service centres

Centralising finance and information tasks gives scale economies, consistency and quality. The drawbacks include set-up cost, possible loss of local knowledge and reduced responsiveness. Controls are still needed.

13. A hospital measures cost per patient treated, the percentage of patients recovering, and drug costs against the price budget. Which is a measure of economy?

A) Cost per patient treated
B) The percentage of patients recovering
C) The percentage of patients recovering per cost
D) Drug costs against the price budget

Correct: D difficult Value for money

Economy is about obtaining inputs at the lowest cost, such as purchase prices against budget. Cost per patient treated measures efficiency (input to output), and recovery rates measure effectiveness (achievement of objectives).

14. Divisional ROI is calculated using net book value of assets. What is the most likely effect as assets age without replacement?

A) ROI falls because depreciation reduces profit
B) ROI is unaffected because the assets are the same
C) ROI rises as the net book value falls, which may discourage reinvestment in new assets
D) ROI rises only if the cost of capital falls

Correct: C difficult Divisional performance

As depreciation reduces net book value, capital employed falls and ROI rises even if profit is unchanged. A manager may then avoid replacing assets, because new assets would reduce ROI.

15. A company judges a call centre by answering most calls within 20 seconds. Which type of measure is this, and what limitation does it have?

A) A service-quality measure that does not show whether the caller's problem was solved
B) A financial measure that shows the cost of each call
C) A cost measure that shows the efficiency of staff
D) A sustainability measure that shows environmental impact

Correct: A difficult Performance measurement

Speed of answering is a non-financial service-quality measure. It does not say whether the call was handled well, so it can encourage staff to answer quickly and then end calls without resolving the query.

16. A division earns profit of CU 240,000 on capital employed of CU 1,200,000 (ROI 20%). A project would add profit of CU 38,000 for an investment of CU 200,000. The cost of capital is 15%. Which statement is correct?

A) Divisional ROI would rise to 20.4%, so the manager would accept it
B) Divisional ROI would fall to 19.9% and the project's residual income is -CU 8,000
C) The project should be rejected because its own ROI of 19% is below 20%, and its residual income is nil
D) Divisional ROI would fall to 19.9%, so an ROI-assessed manager may reject it, although the project's residual income is +CU 8,000

Correct: D difficult Divisional performance

New ROI = (240 + 38) / (1,200 + 200) = 19.9%, lower than 20%, so the manager is tempted to reject. Residual income = 38,000 - 15% x 200,000 = +CU 8,000, so the group gains. This is the goal congruence problem with ROI. The other options give an incorrect ROI or a wrong residual income.

17. Division profit is CU 150,000, capital employed CU 800,000 and the cost of capital 12%. What is the residual income?

A) CU 54,000
B) CU 96,000
C) 18.75%
D) CU 150,000

Correct: A difficult Divisional performance

RI = 150,000 - 12% x 800,000 = CU 54,000. If you answered CU 96,000 you gave the capital charge. If you answered 18.75% you calculated ROI instead. If you answered CU 150,000 you ignored the capital charge.

18. Which TWO of the following statements are correct? (1) ROI can cause managers to reject projects that earn more than the cost of capital. (2) Residual income is expressed as a percentage. (3) Residual income encourages acceptance of projects earning above the cost of capital.

A) (1) and (3)
B) (1) and (2)
C) (2) and (3)
D) (1) only

Correct: A difficult Divisional performance

ROI may deter investment above the cost of capital but below the current ROI. RI is an absolute amount, and a project earning above the cost of capital increases RI.

19. Which balanced scorecard perspective would include 'average training days per employee' and 'percentage of staff qualified in cloud accounting'?

A) Internal business process
B) Learning and growth
C) Customer
D) Financial

Correct: B difficult Performance measurement

Training and skills measure the organisation's capacity to improve and innovate: learning and growth. Internal process measures cycle times and defects, customer measures satisfaction and retention, and financial measures profit and returns.

20. A hotel buys the same quality of linen from a cheaper supplier. Which value for money measure has improved?

A) Efficiency
B) Economy
C) Effectiveness
D) Equity

Correct: B difficult Performance measurement

Economy is acquiring resources at the lowest cost for a given quality. Efficiency compares outputs with inputs, and effectiveness compares outputs with objectives.

21. Which TWO of the following are examples of bias in data analysis? (1) Using only the results of customers who chose to respond to an optional survey. (2) Analysing only the businesses that survived, ignoring those that failed. (3) Using a random sample drawn from the full customer list.

A) (1) and (2)
B) (1) and (3)
C) (2) and (3)
D) (2) only

Correct: A difficult Data analysis

Self-selection (1) and survivorship (2) both distort conclusions. A random sample from the full population (3) reduces bias.

22. Which TWO of the following are benefits of cloud accounting software? (1) Data can be accessed in real time from any location with internet access. (2) Software updates are applied by the provider. (3) The system works fully without an internet connection.

A) (1) and (3)
B) (2) and (3)
C) (1) and (2)
D) (1) only

Correct: C difficult Technology in accounting

Cloud accounting gives remote real-time access and provider-managed updates, but it depends on connectivity.

23. Four divisions each employ 5 finance staff at CU 30,000. A shared service centre would need 14 staff at CU 30,000 plus annual set-up and IT costs of CU 120,000. What is the annual saving?

A) CU 180,000
B) CU 60,000
C) CU 120,000
D) CU 540,000

Correct: B difficult Finance function

Current cost = 20 x 30,000 = CU 600,000. Centre cost = 420,000 + 120,000 = CU 540,000. Saving = CU 60,000. If you answered CU 180,000 you ignored the set-up and IT costs. If you answered CU 120,000 you gave the set-up cost. If you answered CU 540,000 you gave the cost of the centre.

24. A division earns a net profit margin of 8% and an asset turnover of 1.5 times. If asset turnover falls to 1.2 times with the margin unchanged, what is the new ROI?

A) 12.0%
B) 6.4%
C) 8.0%
D) 9.6%

Correct: D difficult Divisional performance

ROI = margin x asset turnover = 8% x 1.2 = 9.6%. If you answered 12% you used the original turnover. If you answered 6.4% you multiplied by 0.8 (the change in turnover) instead of the new turnover. If you answered 8% you used margin only.

25. A division earns profit of CU 90,000 on capital employed of CU 600,000. The group's cost of capital rises from 10% to 16%. What happens to residual income?

A) It falls from CU 54,000 to CU 30,000
B) It rises from CU 30,000 to CU 90,000
C) It is unchanged because profit is unchanged
D) It falls from CU 30,000 to -CU 6,000

Correct: D difficult Divisional performance

RI at 10% = 90,000 - 60,000 = CU 30,000. RI at 16% = 90,000 - 96,000 = -CU 6,000. RI is sensitive to the cost of capital charge.