12 The manager of a trading division has complete autonomy regarding the purchase and use

of non-current assets. The division operates its own credit control policy in respect of its
customers but the group operates a central purchasing function through which the division
places all orders with suppliers and invoices are paid by head office.
Inventories of goods for sale are kept in central stores, from which local divisions call off
requirements for local sales on a monthly basis into a local inventory.
Divisional performance is assessed on the basis of controllable residual income. The
company requires a rate of return of 'R'.
Using the following symbols:
Divisional non-current assets N
Apportioned net book value of central stores S
Divisional working capital
Receivables D
Local inventory I
Bank B
Payables (P)
W
Divisional net assets T
Divisional contribution C
Controllable fixed costs (F)
Head office charges (H)
Divisional net income G

Which of the following formulae calculates the division's controllable residual income?
A [C – F] – [(N + D + B)  R]
B [C – F] – [(N + D + I + B)  R]
C C – [(N + D)  R]
D G – (T  R) LO 3b

13 Division D of Distan Ltd is considering a project which will increase annual profit by £15,000
but will require average receivables levels to increase by £100,000. The company's target
return on investment is 10% and the imputed interest cost of capital is 9%. Division D
currently earns a return on investment of 13%.
Would the return on investment (ROI) and residual income (RI) performance measures
motivate the manager of Division D to act in the interest of the Distan company as a whole?
ROI
A Manager would wish to act in the interest of Distan Ltd
B Manager would not wish to act in the interest of Distan Ltd
RI
C Manager would wish to act in the interest of Distan Ltd
D Manager would not wish to act in the interest of Distan Ltd LO 3b

94 Management Information: Question Bank ICAEW 2019

 14 Division B of a national house-building group is projected to earn profits of £4.5 million in
the current year on capital employed at the year end of £25 million. The division has been
set a target return on investment (ROI) of 20%.
The manager of division B is considering disposing of some slow-moving houses which
have a full market value of £16 million, but are held in the books at cost of £12 million, for a
reduced figure of £14 million.
Which of the following statements is true?
A The revised divisional ROI will be below 20% and the manager will make a goal
congruent decision.
B The revised divisional ROI will be above 20% and the manager will not make a goal
congruent decision.
C The revised divisional ROI will be below 20% and the manager will not make a goal
congruent decision.
D The revised divisional ROI will be above 20% and the manager will make a goal
congruent decision. LO 3b

15 On the last day of the financial year a division has net assets with a total carrying amount of
£300,000. The return on investment for the division is 18%.
The division manager is considering selling a non-current asset immediately before the year
end. The non-current asset has a carrying amount of £15,000 and will sell for a profit of
£5,000.
What would be the division's return on investment (ROI) immediately after the sale of the
asset at the end of the year?
A 17.7%
B 19.3%
C 20.3%
D 20.7% LO 3b

16 Which of the following is not a perspective that is monitored by the balanced scorecard
approach to performance measurement?
A Financial
B Customer
C Supplier
D Innovation and learning LO 3b

ICAEW 2019 Chapter 8: Performance management 95

 17 Indicate which of the following statements are true.
(1) If a company uses a balanced scorecard approach to the provision of information it will
not use ROI or residual income as divisional performance measures.
(2) The residual income will always increase when investments earning above the cost of
capital are undertaken.
(3) The internal business perspective of the balanced scorecard approach to the provision
of information is concerned only with the determination of internal transfer prices that
will encourage goal congruent decisions.
(4) An advantage of the residual income performance measure is that it facilitates
comparisons between investment centres.
A (1) only
B (2) only
C (3) only
D (1) and (4) only LO 3b

18 Which of the following describes a flexible budget?

A A budget comprising variable production costs only
B A budget which is updated with actual costs and revenues as they occur during the
budget period
C A budget which shows the costs and revenues at different levels of activity
D A budget which is prepared using a computer spreadsheet model LO 3c

19 Which of the following statements is/are correct?

(1) Fixed budgets are not useful for control purposes.
(2) A prerequisite of flexible budgeting is a knowledge of cost behaviour patterns.
(3) Budgetary control procedures are useful only to maintain control over an
organisation's expenditure.
A (1), (2) and (3)
B (1) and (2) only
C (1) and (3) only
D (2) only LO 3c

96 Management Information: Question Bank ICAEW 2019

 20 A company manufactures a single product and has drawn up the following flexed budget
for the year.
60% 70% 80%
£ £ £
Variable materials 120,000 140,000 160,000
Variable labour 90,000 105,000 120,000
Production overhead 54,000 58,000 62,000
Other overhead 40,000 40,000 40,000
Total cost 304,000 343,000 382,000

What would be the total cost in a budget that is flexed at the 77% level of activity?
A £330,300
B £370,300
C £373,300
D £377,300 LO 3c

21 Within decentralised organisations there may be cost centres, investment centres and profit
centres. Which of the following statements is true?
A Cost centres have a higher degree of autonomy than profit centres.
B Investment centres have the highest degree of autonomy and cost centres have the
lowest.
C Investment centres have the lowest degree of autonomy.
D Profit centres have the highest degree of autonomy and cost centres have the lowest.
LO 3a

22 A manager of a trading division of a large company has complete discretion over the
purchase and use of non-current assets and inventories. Head Office keeps a central bank
account, collecting all cash from receivables and paying all suppliers. The division is
charged a management fee for these services. The performance of the manager of the
division is assessed on the basis of her controllable residual income. The company requires
a rate of return of 'R'. Using the following symbols:
Divisional non-current assets F
Divisional working capital
Receivables D
Inventory S
Payables (L)
W
Divisional net assets Z
Divisional profit P
Head office management charges (M)
Divisional net profit N

ICAEW 2019 Chapter 8: Performance management 97

 Which of the following is the correct formula for calculating the controllable residual
income of the division?
A P – [(F + S)  R]
B N – [(F + S)  R]
C N – (Z  R)
D P – (Z  R) LO 3b

23 Which of the following sentences best describes what is necessary for a responsibility
accounting system to be successful?
A Each manager should know the criteria used for evaluating his or her own
performance.
B The details on the performance reports for individual managers should add up to the
totals on the report of their superior.
C Each employee should receive a separate performance report.
D Service department costs should be apportioned to the operating departments that
use the service. LO 3a

24 Information concerning three divisions of Haughton plc is shown below.

Division Capital invested Return on investment
P £1,100,000 12%
Q £1,200,000 13%
R £1,500,000 14%
Select the percentage that is the highest rate for the imputed cost of capital that would
produce the same ranking for these three divisions using residual income instead of return
on investment.
A 11.9%
B 13.9%
C 17.9%
D 23.9% LO 3b

25 A division has a residual income of £480,000 and a net profit before imputed interest of
£1,280,000.
If it uses a rate of 10% for computing imputed interest on its invested capital, what is its
return on investment?
A 10%
B 22%
C 6%
D 16% LO 3b

98 Management Information: Question Bank ICAEW 2019

 26 Division X of Martext Ltd produced the following results in the last financial year:
£'000
Net profit 400
Average net assets 2,000
For evaluation purposes all divisional assets are valued at original cost. The division is
considering a project which will increase annual net profit by £30,000, but will require
average inventory levels to increase by £100,000 and fixed assets to increase by £100,000.
Martext Ltd imposes a 16% capital charge on its divisions.
Given these circumstances, will the evaluation criteria of return on investment (ROI) and
residual income (RI) motivate division X managers to accept the project?
ROI RI
A No Yes
B Yes Yes
C No No
D Yes No
LO 3b

27 A division currently has an annual return on investment (ROI) of 20% on its investment base
of £1,200,000. The following additional projects are being considered:
Investment Annual
Project outlay profit ROI
£'000 £'000 %
K 300 100 33
L 700 210 30
M 500 130 26
N 200 44 22

Which combination of investments will maximise the division's return on investment

assuming unlimited capital is available?
A K, L, M and N
B K, L and M only
C K and L only
D K only LO 3b

ICAEW 2019 Chapter 8: Performance management 99

 28 Ulster plc estimates that the net cash flows associated with a new piece of equipment will
be equal in each of the five years of the asset's life.
In assessing performance, Return on Investment (ROI) is used, but the figures for capital
employed and accounting profit have come under scrutiny.
Which methods of stating these two components of ROI will provide figures which are
constant from year to year over the five-year life of this new asset?
Capital employed Accounting profit
A Gross book value Profit after charging depreciation on a reducing balance basis
B Gross book value Profit after charging depreciation on a straight-line basis
C Net book value Profit after charging depreciation on a straight-line basis
D Net book value Profit after charging depreciation on a reducing balancebasis
LO 3b

29 Consider the following statements:

(1) Cloud accounting software allows multi-user access.
(2) Cloud accounting software is more expensive than accounting software packages.
Which of the following is correct with regards to the statements above?
A (1) and (2) are correct
B (1) and (2) are incorrect
C (1) is correct and (2) is incorrect
D (2) is correct and (1) is incorrect LO 3d

30 Which two of the following are true when management information is provided by a shared
service centre (SSC)?
A Management information quality is improved as best practice can be implemented
B There is a more consistent management of business data
C Specific finance issues affecting individual departments will be taken into account
D The costs of providing management information will increase LO 3e

31 Which of the following statements about cloud accounting is/are correct?

(1) Data can be accessed from anywhere with an internet connection.
(2) It helps businesses stay up to date with latest technological advances.
(3) Cloud accounting applications remove risks of data theft.
A (1), (2) and (3)
B (1) and (2) only
C (3) only
D (2) and (3) only LO 3e

100 Management Information: Question Bank ICAEW 2019

 32 When a company decides to use cloud accounting, which of the following does it no longer
need?
A Accounting software update manager
B Trained accounts staff
C Management reporting timetables
D Internet access LO 3e

33 The shared service centre (SSC) of Brilliant Job Ltd contains its human resource
management, payroll, accounting and IT functions. It has developed a service level
agreement (SLA) with its internal clients in the various business units of Brilliant Job Ltd. This
SLA places great importance on service quality, and particularly focuses on the accuracy of
the work that the SSC performs.
Which of the following performance measures reflects this focus on accuracy?
A Percentage of employment contracts sent out without errors
B Speed in dealing with IT user queries
C Number of sales invoices raised
D Timely removal of ex-employees from the payroll database LO 3e

34 The shared service centre (SSC) of Oilspill Ltd operates its payroll, finance and project
management functions. It has adopted the balanced scorecard for measuring its
performance.
Which two of the following would be appropriate for the SSC to use as performance
measures in the ‘customer perspective’ quadrant?
A Cost per accounting transaction processed
B Time saved updating payroll file for overtime payments
C Number of complaints about processing delays
D Number of new projects set up
E Training days per employee
F Percentage of reports issued to department heads on time LO 3e

ICAEW 2019 Chapter 8: Performance management 101

102 Management Information: Question Bank ICAEW 2019
Chapter 9: Standard costing and variance analysis
1 Which of the following would not be used to estimate standard material prices?
A The availability of bulk purchase discounts
B Purchase contracts already agreed
C The forecast movement of prices in the market
D Performance standards in operation LO 3c

2 Which of the following statements about budgets and standards is/are correct?
(1) Budgets can be used in situations where output cannot be measured but standards
cannot be used in such situations.
(2) Budgets can include allowances for inefficiencies in operations but standards use
performance targets which are attainable under the most favourable conditions.
(3) Budgets are used for planning purposes, standards are used only for control purposes.
A (1), (2) and (3)
B (1) and (2) only
C (1) only
D (2) and (3) only LO 3c

3 Which of the following is not a cause of variances?

A Actual prices are different from budgeted prices
B Actual resource usage is different from planned resource usage
C Actual production volume is different from budgeted production volume
D Actual prices are different from forecast prices LO 3c

The following information relates to questions 4 and 5

Telgar plc uses a standard costing system, with its material inventory account being maintained
at standard cost. The following details have been extracted from the standard cost card in
respect of materials.
8 kg @ £0.80/kg = £6.40 per unit
Budgeted production in April was 850 units.
The following details relate to actual materials purchased and issued to production during April
when actual production was 870 units.
Materials purchased 8,200 kg costing £6,888
Materials issued to production 7,150 kg

ICAEW 2019 Chapter 9: Standard costing and variance analysis 103