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ACCA Applied Knowledge · Management Accounting · Performance measurement - application

Which of the following is a recognised limitation of relying on non-financial performance indicators?

A key limitation is that non-financial indicators may not be directly linked to profit, so an improvement in one, such as faster delivery, does not necessarily improve financial results. They are used in all sectors and are normally measured in physical units.

  1. AThey may not be directly linked to profit, so improvement in one may not improve financial resultsCorrect
  2. BThey can only be used by service organisations
  3. CThey cannot be measured in physical units
  4. DThey are always less relevant to managers than financial measures

Explanation

Non-financial indicators such as quality or speed can improve without any direct effect on profit, so managers must link them to strategy. They are used in manufacturing too, are measured in physical units, and are not always less relevant.

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