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| Section | Objectives |
|---|---|
| Topic 1: Understand the use of specifications in procurement and supply | |
| Topic 2: Understand market management in procurement and supply | - Contrast direct costs and indirect costs
|
| 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 # 50
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: B
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 # 51
Which of the following are likely to be disadvantages of using outcome-based specifications? Select THREE that apply
Answer: C,D,E
Explanation:
An Outcome Based Specification (OBS) focuses on the desired outcome of a service in business terms, rather than a detailed technical specification of how the service is to be provided; this allows providers scope to propose innovative solutions that might not have occurred to the procurement team. Outcome should be distinguished from output, which is the measurable results of a set of inputs. The example of difference between outcome and output is written at the bottom of page 123 in the study guide.
Outcomes should be the starting point in making new specification. However, using outcome-based specification has some setbacks:
- First, it is not easy to measure the outcomes. Usually, outcome of a project is a statement like 'increase customer satisfaction', 'maintain ambient temperature' or 'provide a convenient way to do something'. They are not easy to measure as output.
- Second, sometimes the desired outcomes require time to be materialised
- Third, outcomes can be ambiguous
Reference: CIPS study guide page 122-123
LO3, AC 3.1
NEW QUESTION # 52
The buyer's database is regarded as a primary data source. Which of the following is also a source of primary data?
Answer: B
Explanation:
Comprehensive and Detailed Explanation (from CIPS L4M2: Market Management) Primary data = data collected first-hand by the buyer for a specific purpose.
Secondary data = data collected by others and reused (e.g. reports, indices).
A: Price lists collected directly from suppliers at trade fairs represent first-hand market data.B, C, D are all secondary - they originate from external publications and existing datasets.
Hence, A is correct.
Relevant CIPS L4M2 Sections:
Sources of data for supply market analysis
Differences between primary and secondary data
NEW QUESTION # 53
A procurement manager is discussing with other stakeholders about the scope and the implementation of the upcoming construction project. A stakeholder argues that the construction projects are often risky as the overall scope of the work can't be accurately estimated from the beginning. Furthermore, the project spans over a long period, the costs of materials can fluctuate widely. The procurement manager suggests that the pricing structure should be able to cover the supplier's costs plus 10% markup on total costs. This arrangement is known as...?
Answer: A
Explanation:
As you can see from the scenario, the procurement manager is suggesting to use cost plus pricing arrangement.
A cost-plus contract is an agreement to reimburse a company for expenses incurred plus a specific amount of profit, usually stated as a percentage of the contract's full price. These type of contracts are primarily used in construction where the buyer assumes some of the risk but also provides a degree of flexibility to the contractor.
Cost-plus contracts can be separated into four categories. They each allow for the reimbursement of costs as well as an additional amount for profit:
1. Cost-plus award fee contracts allow the contractor to be awarded a fee usually for good per-formance.
2. Cost-plus fixed-fee contracts cover both direct and indirect costs, in addition to a fixed fee.
3. Cost-plus incentive fee contracts happen when the contractor is given a fee if his or her perfor-mance meets or exceeds expectations.
4. Cost-plus percent-of-cost contracts allow the amount of reimbursement to rise if the contrac-tor's costs rise.
In the scenario, the procurement manager suggests a pricing structure that covers supplier's costs and adds
10% markup. This is cost-plus fixed-percentage.
Reference:
- Cost-Plus Contract Definition (investopedia.com)
- CIPS study guide page 30-36
LO 1, AC 1.2
NEW QUESTION # 54
Which of the following always impact negatively on a company's cash flow? Select TWO that ap-ply
Answer: B,D
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 # 55
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