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| Section | Objectives |
|---|---|
| Demand management and value for money | - Balancing cost, quality, and risk - Demand analysis and forecasting - Whole life costing and total cost of ownership |
| Specification development | - Stakeholder engagement in requirements definition - Key performance indicators and measurable requirements - Types of specifications (input, output, conformance) |
| Understanding and defining business needs | - Alignment of procurement with organisational objectives - Role of procurement in identifying and defining needs |
| Risk, sustainability, and compliance considerations | - Legal and regulatory constraints affecting specifications - Managing procurement and supply risks - Sustainability and ethical sourcing requirements |
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NEW QUESTION # 16
A buyer can use sources of information to review indirect costs associated with the manufacture of goods to support negotiations. Is this statement true?
Answer: A
Explanation:
Comprehensive and Detailed Explanation (from CIPS L4M2: Cost Management) CIPS teaches that effective buyers conduct cost breakdowns that include both direct and indirect costs, using data from:
* Supplier financial reports,
* Benchmarking,
* Industry cost models.
Thus, buyers can analyse indirect costs (e.g. overheads, utilities, admin) to strengthen negotiation positions.
Relevant CIPS L4M2 Sections:
* Cost analysis and supplier price build-up
* Using cost data to negotiate value
NEW QUESTION # 17
Which of the following are examples of environmental and social criteria in supplier tender evaluation?
* Compliance with labour standards
* Carbon footprint measures
* Compliance with technical specification
* After-sales maintenance service levels
Answer: A
Explanation:
Comprehensive and Detailed Explanation (from CIPS L4M2 - Sustainable Procurement Evaluation) Environmental criteria: carbon emissions, waste, resource efficiency.
Social criteria: labour standards, equality, community impact.
Thus, 1 and 2 fit perfectly.
Items 3 and 4 are quality or service considerations, not sustainability metrics.
Relevant L4M2 references:
* "Incorporating sustainability in tender evaluation"
* "Triple bottom line and responsible sourcing"
NEW QUESTION # 18
This is the information on an organisation's activities over the past year
* Sale were $5,000,000. The value of accounts receivable was $450,000 at the start of the year and $525,000 at the end of the year
* The value of direct costs was $2,500,000 and 75% of this was bought on credit
* Indirect costs were $3,000,000 and 25% of this was bought on credit
* During the year the organization spent $1,500,000 on new assets and sold $150,000 of old assets. $1,000,000 of the spend on assets was funded by a bank loan
* The organization declared a dividend of $200,000 at the end of the year but this was not paid for another two months
* Opening balance was $175,000
Which of the following is the bank balance of that organization at the end of the year?
Answer: B
Explanation:
In this question, you should understand the concept of cash flow and formula of cash flow. Cash flow calculates the physical money moving in and out a company's bank balance. The cash flow from sale activity is:
cash flow from sale = account receivable at beginning of the year + revenue - account receivable at the end of the year = $450,000 + $5,000,000 - $525,000 = $4,925,000
75% of direct costs was bought by credit, therefore, the company spent 25% on direct cost: -$2,500,000*25/100 = -$625,000
25% of indirect costs was bought on credit. Cash flow out on indirect costs is: -$3,000,000*75/100 = -$2,250,000 Company spent $1,500,000 on new assets funded by a loan of $1,000,000. Cash flow out from this activity is -$500,000 Company received $150,000 from selling old assets Dividends have not been paid for another 2 months, thus, they are not accounted as cash flow out.
The bank balance at the end of the year is: $175,000 + $4,925,000 - $625,000 - $2,250,000 - $500,000 + $150,000 = $1,875,000 LO 1, AC 1.4
NEW QUESTION # 19
How can a procurement department meet the business needs when purchasing leverage items?
Answer: B
Explanation:
Leverage items are high-value, low-risk goods or services - where buyers have strong bargaining power and can use tactics like competitive tendering to gain favourable terms.
The CIPS L4M2 Study Guide, Chapter 4: Business Case and Sourcing Decisions, describes leverage items using the Kraljic Matrix:
"Leverage items are typically sourced using competitive tendering, framework agreements, and other methods that maximise value from the supply market." Option analysis:
* A. Long-term partnerships - Suitable for strategic or critical items.
* B. Efficient processes - Important but not the key strategy for leverage items.
* C. Call-off contracts - Can be used but apply more to routine items.
* D. Competitive tendering - Correct. A main strategy for exploiting purchasing power.
Correct answer: D
CIPS Study Guide Reference:
* Module: L4M2 - Defining Business Needs
* Chapter 4: Business Case Development
* Section: Sourcing Strategy - Kraljic Matrix
NEW QUESTION # 20
Variances occur when there are differences between the budgeted costs and the actual costs. When are labour cost variances likely to arise?
* When the sales prices change over time due to inflation
* When there is more overtime than is expected
* When a different wage grade of worker is used to complete a task than was planned for
* When the supplier changes from manual to electronic invoicing systems for all transactions
Answer: B
NEW QUESTION # 21
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