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ACCA Applied Knowledge · Management Accounting · Performance measurement - overview

In the context of value for money (VFM) in a not-for-profit organisation, which of the following correctly defines economy?

Economy means acquiring inputs of the appropriate quality at the lowest possible cost. It differs from efficiency, which relates outputs to inputs, and from effectiveness, which measures whether objectives are achieved. Economy is therefore concerned only with the cost of the resources purchased.

  1. ASpending as little as possible to acquire inputs of appropriate qualityCorrect
  2. BAchieving the maximum output from the resources used
  3. CAchieving the organisation's stated objectives
  4. DEnsuring services are provided equally to all users

Explanation

Economy concerns the cost of inputs: obtaining resources of appropriate quality at the lowest cost. Maximising output from given inputs is efficiency, and achieving objectives is effectiveness. Equal provision is a matter of equity, not one of the three Es.

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