Performance measurement and control — ACCA Practice Question 13

How to approach this question

Compare the project return to the current ROI (manager's perspective) and to the cost of capital (company's perspective).

Full Answer

B.The manager will reject the project, leading to a lack of goal congruence.✓ Correct

The manager will likely reject the project because its 15% return is lower than the current divisional ROI of 18%; accepting it would drag down the manager's performance metric. However, the company wants the project accepted because its 15% return exceeds the 12% cost of capital. This mismatch causes dysfunctional behavior and a lack of goal congruence. Residual Income (RI) would solve this.

Common mistakes

Assuming managers always accept projects above the cost of capital when evaluated on ROI.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA PM — Performance Management Practice Exam 6

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