CIPS L4M2 Defining Business Needs Online Training
CIPS L4M2 Online Training
The questions for L4M2 were last updated at Nov 23,2024.
- Exam Code: L4M2
- Exam Name: Defining Business Needs
- Certification Provider: CIPS
- Latest update: Nov 23,2024
Question #48
Why should the buying organisation require the supplier to carry out acceptance testing?
- A . To get the approval from the senior management
- B . To check whether the product matches the specification
- C . To compare between the account payables and account receivables
- D . To see whether the supplier engages in unethical business practice
Correct Answer: B
B
Explanation:
Acceptance testing, in the context of the engineering and software industries, is a functional trial performed on a product or prototype before it is put on the market or delivered, to decide whether the specifications or contract have been met. It also makes sure the quality and design of the product meet both contractual and regulatory obligations in terms of functionality, usability, durability, and safety.
If a product is found to be unacceptable at this stage, it can be sent back for modification, debug-ging, repair, or re-design before it can become a costly undertaking for the producer, as would be the case in a product recall.
Reference:
– CIPS study guide page 134-135
– Acceptance Testing (investopedia.com) LO 3, AC 3.2
B
Explanation:
Acceptance testing, in the context of the engineering and software industries, is a functional trial performed on a product or prototype before it is put on the market or delivered, to decide whether the specifications or contract have been met. It also makes sure the quality and design of the product meet both contractual and regulatory obligations in terms of functionality, usability, durability, and safety.
If a product is found to be unacceptable at this stage, it can be sent back for modification, debug-ging, repair, or re-design before it can become a costly undertaking for the producer, as would be the case in a product recall.
Reference:
– CIPS study guide page 134-135
– Acceptance Testing (investopedia.com) LO 3, AC 3.2
Question #48
Why should the buying organisation require the supplier to carry out acceptance testing?
- A . To get the approval from the senior management
- B . To check whether the product matches the specification
- C . To compare between the account payables and account receivables
- D . To see whether the supplier engages in unethical business practice
Correct Answer: B
B
Explanation:
Acceptance testing, in the context of the engineering and software industries, is a functional trial performed on a product or prototype before it is put on the market or delivered, to decide whether the specifications or contract have been met. It also makes sure the quality and design of the product meet both contractual and regulatory obligations in terms of functionality, usability, durability, and safety.
If a product is found to be unacceptable at this stage, it can be sent back for modification, debug-ging, repair, or re-design before it can become a costly undertaking for the producer, as would be the case in a product recall.
Reference:
– CIPS study guide page 134-135
– Acceptance Testing (investopedia.com) LO 3, AC 3.2
B
Explanation:
Acceptance testing, in the context of the engineering and software industries, is a functional trial performed on a product or prototype before it is put on the market or delivered, to decide whether the specifications or contract have been met. It also makes sure the quality and design of the product meet both contractual and regulatory obligations in terms of functionality, usability, durability, and safety.
If a product is found to be unacceptable at this stage, it can be sent back for modification, debug-ging, repair, or re-design before it can become a costly undertaking for the producer, as would be the case in a product recall.
Reference:
– CIPS study guide page 134-135
– Acceptance Testing (investopedia.com) LO 3, AC 3.2
Question #53
The purchase is made in emergency
- A . 2 and 4 only
- B . 1 and 4 only
- C . 1 and 3 only
- D . 2 and 3 only
Correct Answer: A
A
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
A
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
Question #54
A purchaser is looking for alternative supplies if there is a major disruption to their supply chain, including logistics, manufacturing and all support services.
Which of the following method is that purchaser applying?
- A . Treat the risk
- B . Terminate the risk
- C . Tolerate the risk
- D . Transfer the risk
Correct Answer: A
A
Explanation:
Risk control is the process by which an organization reduces the likelihood of a risk event occurring or mitigates the effects that risk should it occur. CIPS preferred way to determine your risk control strategy is to use the four T’s Process:
Transferring Risk can be achieved through the use of various forms of insurance, or the payment to third parties who are prepared to take the risk on behalf of the organization
Tolerating Risk is where no action is taken to mitigate or reduce a risk. This may be because the cost of instituting risk reduction or mitigation activity is not cost-effective or the risks of impact are at so low that they are deemed acceptable to the business. Even when these risks are tolerated they should be monitored because future changes may make it no longer tolerable.
Treating Risk is a method of controlling risk through actions that reduce the likelihood of the risk occurring or minimize its impact prior to its occurrence. Also, there are contingent measures that can be developed to reduce the impact of an event once it has occurred. Finding an alternative sup-plier is an example of treating the risk.
Terminating Risk is the simplest and most often ignored method of dealing with risk. It is the ap-proach that should be most favored where possible and simply involves risk elimination. This can be done by altering an inherently risky process or practice to remove the risk. The same can be used when reviewing practices and processes in all areas of the business.
If an item presents a risk and can be changed or removed without it materially affecting the busi-ness, then removing the risk should be the first option considered; rather than attempting the treat, tolerate or transfer it.
Reference: CIPS study guide page 144
LO 3, AC 3.3
A
Explanation:
Risk control is the process by which an organization reduces the likelihood of a risk event occurring or mitigates the effects that risk should it occur. CIPS preferred way to determine your risk control strategy is to use the four T’s Process:
Transferring Risk can be achieved through the use of various forms of insurance, or the payment to third parties who are prepared to take the risk on behalf of the organization
Tolerating Risk is where no action is taken to mitigate or reduce a risk. This may be because the cost of instituting risk reduction or mitigation activity is not cost-effective or the risks of impact are at so low that they are deemed acceptable to the business. Even when these risks are tolerated they should be monitored because future changes may make it no longer tolerable.
Treating Risk is a method of controlling risk through actions that reduce the likelihood of the risk occurring or minimize its impact prior to its occurrence. Also, there are contingent measures that can be developed to reduce the impact of an event once it has occurred. Finding an alternative sup-plier is an example of treating the risk.
Terminating Risk is the simplest and most often ignored method of dealing with risk. It is the ap-proach that should be most favored where possible and simply involves risk elimination. This can be done by altering an inherently risky process or practice to remove the risk. The same can be used when reviewing practices and processes in all areas of the business.
If an item presents a risk and can be changed or removed without it materially affecting the busi-ness, then removing the risk should be the first option considered; rather than attempting the treat, tolerate or transfer it.
Reference: CIPS study guide page 144
LO 3, AC 3.3
Question #55
Which of the following are considered as direct costs in a construction company? Select TWO op-tions
- A . Raw materials
- B . An employee is hired to work on a project, either exclusively or for an assigned number of hours
- C . The materials and supplies needed for the company’s day-to-day operations.
- D . Advertising and marketing communication
- E . Clerical assistants who maintain the office
Correct Answer: A,B
A,B
Explanation:
Direct costs are directly associated with the production of a good or service. In this question, ‘An employee is hired to work on a project, either exclusively or for an assigned number of hours’ and ‘Raw materials’ are directly related to producing the product. Indirect costs are the general costs of the organisation – these costs cannot easily be attributed to specific products or services (also known as overheads). ‘The materials and supplies needed for the company’s day-to-day operations’ or ‘Clerical assistants who maintain the office’ or ‘Advertising and marketing communication’ is example of indirect cost.
Reference: CIPS study guide page 25-26
LO 1, AC 1.2
A,B
Explanation:
Direct costs are directly associated with the production of a good or service. In this question, ‘An employee is hired to work on a project, either exclusively or for an assigned number of hours’ and ‘Raw materials’ are directly related to producing the product. Indirect costs are the general costs of the organisation – these costs cannot easily be attributed to specific products or services (also known as overheads). ‘The materials and supplies needed for the company’s day-to-day operations’ or ‘Clerical assistants who maintain the office’ or ‘Advertising and marketing communication’ is example of indirect cost.
Reference: CIPS study guide page 25-26
LO 1, AC 1.2
Question #55
Which of the following are considered as direct costs in a construction company? Select TWO op-tions
- A . Raw materials
- B . An employee is hired to work on a project, either exclusively or for an assigned number of hours
- C . The materials and supplies needed for the company’s day-to-day operations.
- D . Advertising and marketing communication
- E . Clerical assistants who maintain the office
Correct Answer: A,B
A,B
Explanation:
Direct costs are directly associated with the production of a good or service. In this question, ‘An employee is hired to work on a project, either exclusively or for an assigned number of hours’ and ‘Raw materials’ are directly related to producing the product. Indirect costs are the general costs of the organisation – these costs cannot easily be attributed to specific products or services (also known as overheads). ‘The materials and supplies needed for the company’s day-to-day operations’ or ‘Clerical assistants who maintain the office’ or ‘Advertising and marketing communication’ is example of indirect cost.
Reference: CIPS study guide page 25-26
LO 1, AC 1.2
A,B
Explanation:
Direct costs are directly associated with the production of a good or service. In this question, ‘An employee is hired to work on a project, either exclusively or for an assigned number of hours’ and ‘Raw materials’ are directly related to producing the product. Indirect costs are the general costs of the organisation – these costs cannot easily be attributed to specific products or services (also known as overheads). ‘The materials and supplies needed for the company’s day-to-day operations’ or ‘Clerical assistants who maintain the office’ or ‘Advertising and marketing communication’ is example of indirect cost.
Reference: CIPS study guide page 25-26
LO 1, AC 1.2
Question #55
Which of the following are considered as direct costs in a construction company? Select TWO op-tions
- A . Raw materials
- B . An employee is hired to work on a project, either exclusively or for an assigned number of hours
- C . The materials and supplies needed for the company’s day-to-day operations.
- D . Advertising and marketing communication
- E . Clerical assistants who maintain the office
Correct Answer: A,B
A,B
Explanation:
Direct costs are directly associated with the production of a good or service. In this question, ‘An employee is hired to work on a project, either exclusively or for an assigned number of hours’ and ‘Raw materials’ are directly related to producing the product. Indirect costs are the general costs of the organisation – these costs cannot easily be attributed to specific products or services (also known as overheads). ‘The materials and supplies needed for the company’s day-to-day operations’ or ‘Clerical assistants who maintain the office’ or ‘Advertising and marketing communication’ is example of indirect cost.
Reference: CIPS study guide page 25-26
LO 1, AC 1.2
A,B
Explanation:
Direct costs are directly associated with the production of a good or service. In this question, ‘An employee is hired to work on a project, either exclusively or for an assigned number of hours’ and ‘Raw materials’ are directly related to producing the product. Indirect costs are the general costs of the organisation – these costs cannot easily be attributed to specific products or services (also known as overheads). ‘The materials and supplies needed for the company’s day-to-day operations’ or ‘Clerical assistants who maintain the office’ or ‘Advertising and marketing communication’ is example of indirect cost.
Reference: CIPS study guide page 25-26
LO 1, AC 1.2
Question #55
Which of the following are considered as direct costs in a construction company? Select TWO op-tions
- A . Raw materials
- B . An employee is hired to work on a project, either exclusively or for an assigned number of hours
- C . The materials and supplies needed for the company’s day-to-day operations.
- D . Advertising and marketing communication
- E . Clerical assistants who maintain the office
Correct Answer: A,B
A,B
Explanation:
Direct costs are directly associated with the production of a good or service. In this question, ‘An employee is hired to work on a project, either exclusively or for an assigned number of hours’ and ‘Raw materials’ are directly related to producing the product. Indirect costs are the general costs of the organisation – these costs cannot easily be attributed to specific products or services (also known as overheads). ‘The materials and supplies needed for the company’s day-to-day operations’ or ‘Clerical assistants who maintain the office’ or ‘Advertising and marketing communication’ is example of indirect cost.
Reference: CIPS study guide page 25-26
LO 1, AC 1.2
A,B
Explanation:
Direct costs are directly associated with the production of a good or service. In this question, ‘An employee is hired to work on a project, either exclusively or for an assigned number of hours’ and ‘Raw materials’ are directly related to producing the product. Indirect costs are the general costs of the organisation – these costs cannot easily be attributed to specific products or services (also known as overheads). ‘The materials and supplies needed for the company’s day-to-day operations’ or ‘Clerical assistants who maintain the office’ or ‘Advertising and marketing communication’ is example of indirect cost.
Reference: CIPS study guide page 25-26
LO 1, AC 1.2
Question #55
Which of the following are considered as direct costs in a construction company? Select TWO op-tions
- A . Raw materials
- B . An employee is hired to work on a project, either exclusively or for an assigned number of hours
- C . The materials and supplies needed for the company’s day-to-day operations.
- D . Advertising and marketing communication
- E . Clerical assistants who maintain the office
Correct Answer: A,B
A,B
Explanation:
Direct costs are directly associated with the production of a good or service. In this question, ‘An employee is hired to work on a project, either exclusively or for an assigned number of hours’ and ‘Raw materials’ are directly related to producing the product. Indirect costs are the general costs of the organisation – these costs cannot easily be attributed to specific products or services (also known as overheads). ‘The materials and supplies needed for the company’s day-to-day operations’ or ‘Clerical assistants who maintain the office’ or ‘Advertising and marketing communication’ is example of indirect cost.
Reference: CIPS study guide page 25-26
LO 1, AC 1.2
A,B
Explanation:
Direct costs are directly associated with the production of a good or service. In this question, ‘An employee is hired to work on a project, either exclusively or for an assigned number of hours’ and ‘Raw materials’ are directly related to producing the product. Indirect costs are the general costs of the organisation – these costs cannot easily be attributed to specific products or services (also known as overheads). ‘The materials and supplies needed for the company’s day-to-day operations’ or ‘Clerical assistants who maintain the office’ or ‘Advertising and marketing communication’ is example of indirect cost.
Reference: CIPS study guide page 25-26
LO 1, AC 1.2
Question #60
Threat of backward integration is significant
- A . 3 and 4 only
- B . 2 and 3 only
- C . 1 and 4 only
- D . 2 and 4 only
Correct Answer: C
C
Explanation:
Price sensitivity is the degree to which the price of a product affects consumers’ purchasing behaviours. Buyer power will be stronger if buying organisation are price sensitive and vice versa.
Backward integration is a form of vertical integration in which a buying organisation expands its role to fulfil tasks formerly completed by businesses up the supply chain. Buyer power is strong if threat of backward integration is high.
Set-up cost is a determinant of threat of new entry. Some industries require very expensive assets in order to make products. The financial risk of entering the industry and not succeeding can deter many potential new entrants. The fewer new entrants, the fewer available substitutes, then the bar-gaining power of buyer can be negatively affected.
Forward integration is a business strategy that involves a form of vertical integration whereby business activities are expanded to include control of the direct distribution or supply of a compa-ny’s products. Threat of forward integration is a determinant of supplier’s bargaining power.
Reference: CIPS study guide page 88-91
LO 2, AC 2.2
C
Explanation:
Price sensitivity is the degree to which the price of a product affects consumers’ purchasing behaviours. Buyer power will be stronger if buying organisation are price sensitive and vice versa.
Backward integration is a form of vertical integration in which a buying organisation expands its role to fulfil tasks formerly completed by businesses up the supply chain. Buyer power is strong if threat of backward integration is high.
Set-up cost is a determinant of threat of new entry. Some industries require very expensive assets in order to make products. The financial risk of entering the industry and not succeeding can deter many potential new entrants. The fewer new entrants, the fewer available substitutes, then the bar-gaining power of buyer can be negatively affected.
Forward integration is a business strategy that involves a form of vertical integration whereby business activities are expanded to include control of the direct distribution or supply of a compa-ny’s products. Threat of forward integration is a determinant of supplier’s bargaining power.
Reference: CIPS study guide page 88-91
LO 2, AC 2.2
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