CIPS L4M2 Exam Questions and Answers
Total cost of ownership Correct Ans-Is how much it costs to own the product over its
lifetime until disposal.
Whole life costing Correct Ans-Is a technique used to arrive at the total cost of ownership
Planning, preparation and implementation Correct Ans-Three stages of WLC
WLC - planning Correct Ans-Determines the budget for the asset being purchased, helps
improve the specification to reduce cost, and simulation or decision support models can be
used to assist.
WLC - preparation Correct Ans-Testing the various models for calculating WLC and is
necessary to choose the best model.
WLC - implementation Correct Ans-Implements the model to get the results. A review and
intervals for regular recalculation.
Acquisition, operation and disposal Correct Ans-There is a vital difference between
purchase price and total cost of ownership. This includes 3 categories.
Cost based pricing Correct Ans-Allows the supplier to cover its costs and make a profit.
, CIPS L4M2 Exam Questions and Answers
Limits to cost based pricing Correct Ans-Ignores competition and other influences on
pricing and are quite inflexible. They also don't give a supplier an incentive to reduce or
manage costs.
Cost behaviour Correct Ans-The way in which costs of outputs are affected by fluctuations
in the level of activity.
Open book costing Correct Ans-The supplier provides the buyer with information about
their costs to be scrutinised e.g. reassures there is VFM, facilitates cost based pricing.
Costing methods Correct Ans-Marginal, absorption, activity based
Marginal costing method Correct Ans-Is widely used by managers and is useful in the
distinction between variable costs and fixed costs. Variable costs are always the relevant costs
in terms of decision making.
Absorption costing method Correct Ans-The challenge is to attribute a 'fair' amount of
fixed costs to each unit of production output. Traditionally this has been done by determining
the amount of some measurable resource consumed in a production period and the
overheads of that resource.
Re-buy Correct Ans-It is not necessary to specify a new specification or to source the
market. Call-off or framework agreement. A preferred supplier is in place
, CIPS L4M2 Exam Questions and Answers
Modified Buy Correct Ans-Review of existing contract requirements and making any
necessary amendments such as to build additional benefits, streamline the business or to
establish new KPIs/SLAs. Where some of the specification or requirements have changed.
New Buy Correct Ans-A new purchase outlines requirements that have not been specified
before. There is a higher risk involved in procuring a new purchase, demand/supplier/market
analysis should be conducted, and new specific KPIs should be included in the specification.
Business Needs Correct Ans-The mission of the organisation determines its requirements
and therefore what procurement needs to source.
R - regulatory (any legal requirements)
A - availability (supply of goods/services when required, risk, financial and capacity)
Q - quality (consistency, repeatability, and fit for purpose)
S - service requirements (flexibility, support, availability)
C - cost (target costs, total cost of ownership, continuous improvement)
I - innovation (improving customer experience) Correct Ans-A model that can be used to
identify business needs.
Kraljic Matrix Correct Ans-A matrix that allows procurement to prioritise spend in line with
business needs.
Total cost of ownership Correct Ans-Is how much it costs to own the product over its
lifetime until disposal.
Whole life costing Correct Ans-Is a technique used to arrive at the total cost of ownership
Planning, preparation and implementation Correct Ans-Three stages of WLC
WLC - planning Correct Ans-Determines the budget for the asset being purchased, helps
improve the specification to reduce cost, and simulation or decision support models can be
used to assist.
WLC - preparation Correct Ans-Testing the various models for calculating WLC and is
necessary to choose the best model.
WLC - implementation Correct Ans-Implements the model to get the results. A review and
intervals for regular recalculation.
Acquisition, operation and disposal Correct Ans-There is a vital difference between
purchase price and total cost of ownership. This includes 3 categories.
Cost based pricing Correct Ans-Allows the supplier to cover its costs and make a profit.
, CIPS L4M2 Exam Questions and Answers
Limits to cost based pricing Correct Ans-Ignores competition and other influences on
pricing and are quite inflexible. They also don't give a supplier an incentive to reduce or
manage costs.
Cost behaviour Correct Ans-The way in which costs of outputs are affected by fluctuations
in the level of activity.
Open book costing Correct Ans-The supplier provides the buyer with information about
their costs to be scrutinised e.g. reassures there is VFM, facilitates cost based pricing.
Costing methods Correct Ans-Marginal, absorption, activity based
Marginal costing method Correct Ans-Is widely used by managers and is useful in the
distinction between variable costs and fixed costs. Variable costs are always the relevant costs
in terms of decision making.
Absorption costing method Correct Ans-The challenge is to attribute a 'fair' amount of
fixed costs to each unit of production output. Traditionally this has been done by determining
the amount of some measurable resource consumed in a production period and the
overheads of that resource.
Re-buy Correct Ans-It is not necessary to specify a new specification or to source the
market. Call-off or framework agreement. A preferred supplier is in place
, CIPS L4M2 Exam Questions and Answers
Modified Buy Correct Ans-Review of existing contract requirements and making any
necessary amendments such as to build additional benefits, streamline the business or to
establish new KPIs/SLAs. Where some of the specification or requirements have changed.
New Buy Correct Ans-A new purchase outlines requirements that have not been specified
before. There is a higher risk involved in procuring a new purchase, demand/supplier/market
analysis should be conducted, and new specific KPIs should be included in the specification.
Business Needs Correct Ans-The mission of the organisation determines its requirements
and therefore what procurement needs to source.
R - regulatory (any legal requirements)
A - availability (supply of goods/services when required, risk, financial and capacity)
Q - quality (consistency, repeatability, and fit for purpose)
S - service requirements (flexibility, support, availability)
C - cost (target costs, total cost of ownership, continuous improvement)
I - innovation (improving customer experience) Correct Ans-A model that can be used to
identify business needs.
Kraljic Matrix Correct Ans-A matrix that allows procurement to prioritise spend in line with
business needs.
