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| Section | Objectives |
|---|---|
| Understand the use of specifications in procurement and supply | |
| Understand how to develop a business case for requirements to be sourced from external suppliers | - Analyse how market factors affect procurement |
| Understand market management in procurement and supply | - Contrast direct costs and indirect costs
|
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NEW QUESTION # 24
John has been asked to develop a business case before obtaining approval to purchase a large piece of capital equipment for a glove manufacturing unit. Is this the right thing to do?
Answer: C
Explanation:
Detailed Explanation:A business case allows for the evaluation of alternatives and ensures alignment with strategic goals. It also assesses risks, benefits, and financial impact, providing a comprehensive basis for decision-making. Reference: CIPS Level 4, Capital Expenditure and Business Case Development.
NEW QUESTION # 25
A garment manufacturer supplies global retailers with t-shirts, shirts, and linen trousers. Because of currency fluctuations, the manufacturer is aware that they must control their direct costs in order to ensure profits.
Which of the following is a direct cost for the garment manufacturer?
Answer: C
Explanation:
Detailed Explanation:
Cotton fabric is a direct cost because it is directly attributable to the production of the garments. Costs like rent, utilities, and payroll are indirect costs associated with running the business. Reference: CIPS Level 4, Cost Categorization in Procurement.
NEW QUESTION # 26
Which of the following factors should be assessed to understand the competitiveness of a supply market?
Answer: A
Explanation:
To evaluate how competitive a supply market is, procurement professionals should look at the number of suppliers, availability of alternatives, and ease of market entry.
The CIPS L4M2 Study Guide, Chapter 2: Understanding Markets, states:
"The number of suppliers in a market is a key indicator of competitiveness. More suppliers mean more choice and better pricing power for buyers." Option analysis:
* A. Minimum wage - Impacts labour cost but not overall competitiveness of supplier numbers or options.
* B. Cross National Product - An economic metric, but not directly useful for assessing market competitiveness.
* C. Number of suppliers within the market - Correct. A fundamental indicator of supply-side competition.
* D. Previous price paid - Useful for historical benchmarking, but not a market structure factor.
Correct answer: C
CIPS Study Guide Reference:
* Module: L4M2 - Defining Business Needs
* Chapter 2: Market Management
* Section: Understanding Supply Market Competitiveness
NEW QUESTION # 27
Which of the following activities are considered as primary activities of an organization according to Porter's value chain? Select TWO that apply:
Answer: B,E
Explanation:
Primary activities consist of inbound logistics, operations, outbound logistics, sales & marketing, service.
Second activities consist of firm infrastructure, human resource management, technology development and procurement The following graph illustrate the value chain (Source: Smartsheet)
Picking and delivery components is inbound logistics.
Maintenance is an example of operations activity.
Sourcing transportation services is an activity of procurement
Assembly design is an activity in research and development (Technology) Recruiting is an activity of human resource management Reference:
LO 2, AC 2.1
NEW QUESTION # 28
Which of the following can cause overhead variance? Select TWO that apply:
Answer: C,D
Explanation:
Overhead variances arise when the actual overhead costs incurred differ from the expected amounts. Managers want to understand the reasons for these differences, and so should consider computing one or more of the overhead variances described below. Each of these variances applies to a different aspect of overhead expenditures. It is not necessary to calculate these variances when a manager cannot influence their outcome.
Fixed Overhead Spending Variance
The fixed overhead spending variance is the difference between the actual fixed overhead expense incurred and the budgeted fixed overhead expense. An unfavorable variance means that actual fixed overhead expenses were greater than anticipated. The formula for this variance is:
Actual fixed overhead - Budgeted fixed overhead = Fixed overhead spending variance The amount of expense related to fixed overhead should (as the name implies) be relatively fixed, and so the fixed overhead spending variance should not theoretically vary much from the budget.
Fixed Overhead Volume Variance
The fixed overhead volume variance is the difference between the amount of fixed overhead actually applied to produced goods based on production volume, and the amount that was budgeted to be applied to produced goods. For example, a company budgets for the allocation of $25,000 of fixed overhead costs to produced goods at the rate of $50 per unit produced, with the expectation that 500 units will be produced. However, the actual number of units produced is 600, so a total of $30,000 of fixed overhead costs are allocated. This creates a fixed overhead volume variance of $5,000.
Variable Overhead Efficiency Variance
The variable overhead efficiency variance is the difference between the actual and budgeted hours worked, which are then applied to the standard variable overhead rate per hour. The formula is:
Standard overhead rate x (Actual hours - Standard hours)
= Variable overhead efficiency variance
A favorable variance means that the actual hours worked were less than the budgeted hours, resulting in the application of the standard overhead rate across fewer hours, resulting in less expense being incurred. However, a favorable variance does not necessarily mean that a company has incurred less actual overhead, it simply means that there was an improvement in the allocation base what was used to apply overhead.
Variable Overhead Spending Variance
The variable overhead spending variance is the difference between the actual and budgeted rates of spending on variable overhead. The variance is used to focus attention on those overhead costs that vary from expectations. The formula is:
Actual hours worked x (Actual overhead rate - standard overhead rate)
= Variable overhead spending variance
A favorable variance means that the actual variable overhead expenses incurred per labor hour were less than expected.
In the study guide, CIPS splits overhead variance into volume and expenditure variance. They can be understood as variable and fixed overhead variance respectively.
Reference:
- CIPS study guide page 59
- What are overhead variances? - AccountingTools
LO 1, AC 1.4
NEW QUESTION # 29
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