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| Section | Objectives |
|---|---|
| Topic 1: Understand market management in procurement and supply | - Contrast direct costs and indirect costs
|
| 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 |
>> Latest CIPS L4M2 Exam Questions <<
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NEW QUESTION # 45
Honda of America Manufacturing is a well established automobile manufacturer. It purchases tens of thousands of materials and parts from suppliers, however, only few of them are strategic. To these suppliers, Honda's procurement manager requires them to send details of labour, materials, overhead cost and profit.
However, the suppliers are reluctant to submit such confidential infor-mation. Is the procurement manager's action appropriate?
Answer: C
Explanation:
With strategic suppliers, the aim should be to work co-operatively with them to find ways of reducing costs to achieve a target cost. It is necessary to work with the suppliers in carrying out open book costing by having first persuaded them of the need to do it. Open book can be used to establish a Target Cost, a Compensation Event value and can eventually be used to ensure the payment of actual costs to an organization. A number of forms of contract cater for this functionality of which only the NEC goes to into any great depth of methodology.
If the suppliers worry about leak of confidential information, procurement team can suggest them to sign a non-disclosure agreement. The buying organisation should also comply with data protection regulations. The Employer / individual responsible for a project's costs should ultimately take a pragmatic and sensible approach with regard to commercially or personally sensitive data provided by the contractor. The primary goal of all open book cost management is to provide Employer comfort and security in the accuracy of commercial data; this effectively means striking a balance between undertaking full audits and blind faith.
Reference: CIPS study guide page 32
LO 1, AC 1.2
NEW QUESTION # 46
Kelly Strong, a procurement manager, receives a quotation 5% over budget. Market prices of known materials are significantly lower than estimated. What should Kelly's next step be?
Answer: B
Explanation:
Comprehensive and Detailed Explanation (from CIPS L4M2: Business Case & Cost Analysis) When the quoted price seems higher than expected and market data suggests lower costs, CIPS advises to:
* Seek a detailed cost breakdown to identify which components are inflating price.
* This supports negotiation and ensures transparency, aligning with should-cost analysis and cost-based negotiation methods.
Options A and C would act prematurely; B (delay) is unnecessary.
Relevant CIPS L4M2 Sections:
* Cost breakdown and cost analysis
* Supplier pricing transparency and negotiation preparation
NEW QUESTION # 47
Which of the following is a potential driver of change in the manufacturing industry to help reduce costs and increase efficiency?
Answer: A
NEW QUESTION # 48
Which of the following are the causes of material cost variance?
1. The buyer updates purchase-to-pay system to track payment and delivery
2. An unprocessed goods received note is missing
3. The employees must work overtime to catch up with the customers' orders
4. The purchase is made in emergency
Answer: B
Explanation:
The difference between the standard cost of direct materials specified for production and the actual cost of direct materials used in production is known as Direct Material Cost Variance. Material Cost Variance gives an idea of how much more or less cost has been incurred when compared with the standard cost. Thus, Variance Analysis is an important tool to keep a tab on the deviations from the standard set by a company.
Material Cost Variance can be due to less purchase price being paid than the standard or because of change in the quantity of material used. Thus, Material Cost Variance is made up of two components namely; Material Price Variance and Material Usage Variance.
Among the 4 options:
- 'The buyer updates purchase-to-pay system to track payment and delivery': The use of e-procurement system can increase the productivity and create labour cost variance, not material cost variance.
- 'An unprocessed goods received note is missing': If a goods received note is missing, the buyer won't pay for that batch, which create quantity variance.
- 'The employees must work overtime to catch up with the customers' orders': Overtime salary can cause labour variance, not material cost variance.
- 'The purchase is made in emergency': Normally, the price in emergency situation is higher than usual. This can cause price variance.
Reference:
- CIPS study guide page 57-59
- Material Variance | Cost, Price, Usage Variance Formula, Example - eFM (efinancemanage-ment.com) LO 1, AC 1.4
NEW QUESTION # 49
When making a business case, the proposal has to consider financial costs, non-financial costs and opportunity costs. What is an opportunity cost?
Answer: B
NEW QUESTION # 50
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