CIPS L4M5 Commercial Negotiation Online Training
CIPS L4M5 Online Training
The questions for L4M5 were last updated at Feb 05,2025.
- Exam Code: L4M5
- Exam Name: Commercial Negotiation
- Certification Provider: CIPS
- Latest update: Feb 05,2025
Question #21
Procurement team is required to improve leverage with their suppliers through spend consolidation.
To check whether there is any opportunity to consolidate spend, which of the following should be priority of procurement team?
- A . Spend analysis
- B . Value engineering
- C . Price analysis
- D . Total cost analysis
Correct Answer: A
A
Explanation:
In order to identify opportunities where you can increase your leverage with supplier, you need to understand your spend. Undertaking spend analysis of your accounts payable (AP) data is an essential first step here.
A
Explanation:
In order to identify opportunities where you can increase your leverage with supplier, you need to understand your spend. Undertaking spend analysis of your accounts payable (AP) data is an essential first step here.
Question #22
Which of the following is the area where two or more negotiating parties may find common ground?
- A . Zone of potential agreement
- B . Zone of proximal development
- C . Walk away area
- D . Best alternative to a negotiated agreement
Correct Answer: A
A
Explanation:
The zone of possible agreement (ZOPA) orbargaining range is considered an area where two or more negotiating parties may find common ground. It is this area where parties will often compromise and strike a deal. In order for negotiating parties to find a settlement or reach an agreement, they must work towards a common goal and seek an area that incorporates at least some of each party’s ideas.
The zone of proximal development refers to the difference between what a learner can do without help and what he or she can achieve with guidance and encouragement from a skilled partner.
There is no Walk away area. Walk away point is a position from which you cannot concede any more ground and must walk away/decline a deal.
Best alternative to a negotiated agreement is a fallback or backstop position if the negotiation fails to result in an agreement/no deal is agreed. LO 1, AC 1.2
A
Explanation:
The zone of possible agreement (ZOPA) orbargaining range is considered an area where two or more negotiating parties may find common ground. It is this area where parties will often compromise and strike a deal. In order for negotiating parties to find a settlement or reach an agreement, they must work towards a common goal and seek an area that incorporates at least some of each party’s ideas.
The zone of proximal development refers to the difference between what a learner can do without help and what he or she can achieve with guidance and encouragement from a skilled partner.
There is no Walk away area. Walk away point is a position from which you cannot concede any more ground and must walk away/decline a deal.
Best alternative to a negotiated agreement is a fallback or backstop position if the negotiation fails to result in an agreement/no deal is agreed. LO 1, AC 1.2
Question #23
What is the most likely outcome when two organisations with adversarial relationship negotiate with each other?
- A . Deadlocked
- B . Lose lose
- C . Win lose
- D . Win win
Correct Answer: C
C
Explanation:
An adversarial relationship in purchasing and supply arises when identical or equivalent good or services are available from competing suppliers and buyers/sellers are trying to gain an advantage over each other. Low levels of trust are characteristic of adversarial relationships. The outcome when two organisations with adversarial negotiate is most likely to be win-lose.
Reference:
Adversarial purchasing – Wikipedia
CIPS study guide page 32-35
C
Explanation:
An adversarial relationship in purchasing and supply arises when identical or equivalent good or services are available from competing suppliers and buyers/sellers are trying to gain an advantage over each other. Low levels of trust are characteristic of adversarial relationships. The outcome when two organisations with adversarial negotiate is most likely to be win-lose.
Reference:
Adversarial purchasing – Wikipedia
CIPS study guide page 32-35
Question #24
It may be more difficult to buy on a credit from supplier who locates in a country with a hyperinflation?
Is this assumption true?
- A . No, because supplier’s bank will take risks from currency fluctuation
- B . Yes, because thesupplier’s currency will lose its value overtime
- C . Yes, because buyer has more advantage if they make payment in their own currency
- D . No, because the higher the inflation rate, the stronger the supplier’s currency
Correct Answer: B
B
Explanation:
If the inflation rate is running high, then obtaining credit as a buyer is normally more difficult or expensive as money in the future will be worth less than money today.
B
Explanation:
If the inflation rate is running high, then obtaining credit as a buyer is normally more difficult or expensive as money in the future will be worth less than money today.
Question #25
Understanding supplier’s mark-up and margin can provide procurement professional a comprehensive insight into supplier’s net profits. Is this statement true?
- A . Yes, because supplier’s mark-up and margin are two most valuable sources of information to procurement
- B . No, because mark-up and margin inform little about supplier’s net profit
- C . No, because margin is enough to tell procurement about supplier’s profitability
- D . Yes, because these are two indicators of supplier’s future prospect
Correct Answer: B
B
Explanation:
Mark-up and margin allow supplier to make gross profit. Remember that every supplier operates under different cost structures and some are set up to be most profitableat a particular level of volume, so it is dangerous to assume all suppliers can survive on a lower margin if their volume increases. Intelligent buyers understand that mark-up and margin may define gross profits, but they tell you very little about a supplier’s net profits. LO 2, AC 2.1
B
Explanation:
Mark-up and margin allow supplier to make gross profit. Remember that every supplier operates under different cost structures and some are set up to be most profitableat a particular level of volume, so it is dangerous to assume all suppliers can survive on a lower margin if their volume increases. Intelligent buyers understand that mark-up and margin may define gross profits, but they tell you very little about a supplier’s net profits. LO 2, AC 2.1
Question #26
Before engaging in a negotiation with a supplier of rechargeable lights, procurement team tries to visualise the breakdown of supplier’s costs to calculate its break-even point. They estimate that total fixed expenses related to rechargeableelectric light are $270,000 per month and variable expenses involved in manufacturing this product are $126 per unit. The supplier charges its customer $180 per unit.
Within its current capacity, this supplier will make a profit at which of the following?
- A . More than 5,000 units are sold monthly
- B . Exactly 5,000 units are sold per month
- C . Exactly 1,500 units are sold monthly
- D . More than 1,500 units are sold monthly
Correct Answer: A
A
Explanation:
The analysis of cost into fixed and variable enables organisationsto determine their break-even point (BE) – the point where total revenue from sales and total cost exactly balance. All costs need to be covered by sale revenue in order for a company to make a profit. If you know your fixed costs and your variable costs then you can work out the minimum quantity of goods or services you need to sell to break even. Break even point is measured in volume and can be worked out graphically or via formulae: Price – Variable costs = Contribution
Break even point (volume) = Fixed expenses/Contribution margin per unit In this scenario, the break even point (Q) is: 270,000/(180-126) = 5,000
To make a profit, the supplier needs to sell more than 5,000units per month.
The BE point is thus an important determinant of flexibility of pricing for suppliers. Before BE is achieved there will be much greater reluctance to offer price concessions to customers than after BE is achieved.
LO 2, AC 2.1
A
Explanation:
The analysis of cost into fixed and variable enables organisationsto determine their break-even point (BE) – the point where total revenue from sales and total cost exactly balance. All costs need to be covered by sale revenue in order for a company to make a profit. If you know your fixed costs and your variable costs then you can work out the minimum quantity of goods or services you need to sell to break even. Break even point is measured in volume and can be worked out graphically or via formulae: Price – Variable costs = Contribution
Break even point (volume) = Fixed expenses/Contribution margin per unit In this scenario, the break even point (Q) is: 270,000/(180-126) = 5,000
To make a profit, the supplier needs to sell more than 5,000units per month.
The BE point is thus an important determinant of flexibility of pricing for suppliers. Before BE is achieved there will be much greater reluctance to offer price concessions to customers than after BE is achieved.
LO 2, AC 2.1
Question #27
Which of the following are typical characteristics of activity-based costing (ABC) method? Select TWO that apply.
- A . ABC provides the information required to take action and realise improvements
- B . Limited understanding of true costs incurred
- C . ABC has tended to over cost products on long runs and under cost those on short runs
- D . Costs are allocated based on volume
- E . Variable and all related overhead expenses are specifically assigned to a business activity
Correct Answer: A,E
A,E
Explanation:
Activity-based costing is an alternative approach to traditional absorption costing. The
characteristics of these two methods are illustrated in the graph below:
A,E
Explanation:
Activity-based costing is an alternative approach to traditional absorption costing. The
characteristics of these two methods are illustrated in the graph below:
Graphical user interface, text, chat or text message, website
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Question #28
Which of the following should be done when undertaking a reflection activity on negotiation? Select TWO that apply.
- A . Identify areas in your skill set where you need to improve
- B . Gloss over areas where you need to improve your skills or performance
- C . Be overly modest about your contribution to the outcomes of negotiation
- D . Use generalised or ambiguous language when describing your strengths and development areas
- E . Be honest and objective about your skills
Correct Answer: A,E
A,E
Explanation:
Giving positive group and individual feedback is easy, as is self-congratulation and, in many cases, it is hoped, this will be an accurate reflection on actual performance. When it comes to developmental or difficult feedback, it is only natural to want to move on and not reflect on the negative or developmental points, or why a negotiation did not achieve its objectives. But this is a mistake. The best learning opportunities come from reflection on what could be done better, and this can beachieved without blame, threat or condemnation. Everyone and every team will make mistakes and/or have areas where they could have improved. Clearly, if every reflection session concludes that an individual or team keeps making the same mistake, then there is a case to change roles or consider alternative
approaches.
About Dos and Don’ts of reflection, you can refer here: https://offices.depaul.edu/human-resources/employee-relations/Documents/Self%20Assesement.pdf
A,E
Explanation:
Giving positive group and individual feedback is easy, as is self-congratulation and, in many cases, it is hoped, this will be an accurate reflection on actual performance. When it comes to developmental or difficult feedback, it is only natural to want to move on and not reflect on the negative or developmental points, or why a negotiation did not achieve its objectives. But this is a mistake. The best learning opportunities come from reflection on what could be done better, and this can beachieved without blame, threat or condemnation. Everyone and every team will make mistakes and/or have areas where they could have improved. Clearly, if every reflection session concludes that an individual or team keeps making the same mistake, then there is a case to change roles or consider alternative
approaches.
About Dos and Don’ts of reflection, you can refer here: https://offices.depaul.edu/human-resources/employee-relations/Documents/Self%20Assesement.pdf
Question #29
Which of the following is the best description of direct cost?
- A . Direct costs are only variable raw materials that constitute a product
- B . Direct costs include raw materials, labour andoverheads
- C . Direct costs include only raw materials and labour of making the final product
- D . Direct costs include raw materials, labour and other expenses attributable to the final product
Correct Answer: D
D
Explanation:
Direct costs are those costs of a product/service directly attributable/traceable to its production, for example, the costs of labour and materials directly used to produce the goods/services which the organisation sells.
D
Explanation:
Direct costs are those costs of a product/service directly attributable/traceable to its production, for example, the costs of labour and materials directly used to produce the goods/services which the organisation sells.
Question #30
Which of the following is considered a weakness of a ‘dealer’ style negotiator?
- A . May shift position quickly
- B . May be too assertive
- C . Focuses on the facts and not the people
- D . Very precise
Correct Answer: A
A
Explanation:
A useful and simple shorthand for preferred negotiation styles is summarised by four simple descriptor: ‘warm’, ‘tough’, ‘logical’ and ‘dealer’, which can beapplied to describe individuals’ dominant preferred style in most circumstances.
Warm – a people person
Tough – a hard-nosed negotiator
Logic – a numbers person
Dealer – a trader who loves bargaining
Strengths, weaknesses of dealer style are described below:
A
Explanation:
A useful and simple shorthand for preferred negotiation styles is summarised by four simple descriptor: ‘warm’, ‘tough’, ‘logical’ and ‘dealer’, which can beapplied to describe individuals’ dominant preferred style in most circumstances.
Warm – a people person
Tough – a hard-nosed negotiator
Logic – a numbers person
Dealer – a trader who loves bargaining
Strengths, weaknesses of dealer style are described below:
Table
Description automatically generated
LO 2, AC 2.4
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