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| Section | Objectives |
|---|---|
| Topic 1: Understand market management in procurement and supply | - Compare the competitive forces that influence markets
|
| Topic 2: Understand the use of specifications in procurement and supply | |
| Topic 3: Understand how to develop a business case for requirements to be sourced from external suppliers | - Analyse how market factors affect procurement |
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NEW QUESTION # 208
ABC Ltd has recently set up a stationery contract with a large stationery provider, obtaining fixed prices on core stationery items. The brochures have been distributed within ABC Ltd and one of the key users wants to order a corner desk and office chair from the brochure. Is this within scope?
Answer: D
Explanation:
The scope of a contract is defined by the agreed specifications, product categories, and pricing schedules. If the contract was set up only for stationery, then furniture would be outside the contract scope - even if included in the supplier's brochure.
According to the CIPS L4M2 Study Guide, Chapter 1: Developing Specifications, it explains:
"The scope of a contract must be clearly defined. Any procurement outside of this scope may result in non- compliance and unintended spending." Analysis:
* A. No. because the contract is for stationery only - Correct. Furniture is a separate category and needs a separate procurement route if not included in the original scope.
* B. Desk not matching existing furniture - Not relevant to contractual scope.
* C. Contract with the company - Irrelevant. The scope is defined by category, not just the supplier.
* D. Equipment in brochure - Inclusion in a brochure does not equal contract coverage.
Correct answer: A
CIPS Study Guide Reference:
* Module: L4M2 - Defining Business Needs
* Chapter 1: Specifications and Scope of Requirements
NEW QUESTION # 209
Which of the following is a risk to buying organization when using conformance specification?
Answer: D
Explanation:
When using conformance specification, the buying organisation is responsible for the performance of the purchase. If the product fails due to poorly designed specification, the buyer is wholly responsible for it. It cannot blame the supplier for the failure because they still provided 'fit for purpose' product.
'Time to produce specification is shortened': Conformance specification requires details on dimen-sion, materials, design, etc. With such requirements, time to produce a complete conformance specification is often longer than producing performance specification.
'Buyer cannot control the inputs': Conformance specification is a list of inputs from buyer, so buyer has control over the inputs that will make the product. It also means that buyer is responsible for any product failure.
'Buyer may face liquidity risks': Liquidity means that how quick a business turns its assets into cash. This is a financial term, it does not link directly with specification failure.
Reference: CIPS study guide page 118-119
LO 3, AC 3.1
NEW QUESTION # 210
A company buys components from its supplier. However, the supplier has not sent the invoice to the buyer and the buyer will not pay until next month. How will that amount of money be shown in the financial statements of the buying organization?
Answer: A
Explanation:
The buyer won't pay the supplier until next month. This is a liability to the buyer. This amount can be recorded as accrued expense or accounts payable. On the other hand, the supplier has not sent the invoice, so it should be accrued expense.
Both accounts payables and accrued expenses are liabilities. Accounts payable is the total amount of short-term obligations or debt a company has to pay to its creditors for goods or services bought on credit. With accounts payables, the vendor's or supplier's invoices have been received and recorded.
On the other hand, accrued expenses are the total liability that is payable for goods and services that have been consumed by the company or received. However, accrued expenses are those bills in which an invoice or bill has not yet been received. As a result, accrued expenses can sometimes be an estimated amount of what's owed, which is adjusted later to the exact amount, once the invoice has been received.
Conversely, accounts payable should represent the exact amount of the total owed from all of the invoices received.
Reference:
- CIPS study guide page 55-56
- Understanding Accrued Expenses vs. Accounts Payable (investopedia.com) LO 1, AC 1.4
NEW QUESTION # 211
As the lead procurement manager, you are asked to compile a business case for a large project. Which should be included?
* Costs and risks
* List of large suppliers
* Business benefits
* Informal recommendation
Answer: D
Explanation:
Comprehensive and Detailed Explanation (from CIPS L4M2: Business Case Development) A business case should include:
* Costs and risks (financial, operational, reputational)
* Expected business benefits (value, performance, compliance)
Supplier lists or informal notes are not part of a formal business case.
Relevant CIPS L4M2 Sections:
* Key contents of a business case
* Risk and benefit analysis in procurement justification
NEW QUESTION # 212
Which of the following always impact negatively on a company's cash flow? Select TWO that ap-ply
Answer: B,C
Explanation:
To answer this question, candidates are required to remember the cash flow cycle and cost entries as well as the impact of their timing on a business.
Diagram Description automatically generated
Source: https://cfoperspective.com/free-your-cash-trapped-in-the-cash-conversion-cycle/ Shorter payment term and more inventory are likely to have negative impact on the cash flow be-cause the buyer has to pay sooner and greater.
"Customers agree to pay immediately" will increase the organisation's bank account sooner.
Depreciation has no impact on cash flow as it is only listed in Profit and Loss statement.
Increasing revenue may have negative or positive impact on cash flow, depending on the real situation.
Reference: CIPS study guide page 54
LO 1, AC 1.4
NEW QUESTION # 213
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