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CIPS L4M2 certification exam is an essential qualification for professionals looking to advance their careers in the field of business analysis. Defining Business Needs certification is specifically designed for individuals who are responsible for identifying and defining business needs within their organization. It is the second module in the Level 4 program and builds upon the foundation established in the L4M1 module.
NEW QUESTION # 130
Lucy, a junior procurement analyst, has been asked to assess the competitive forces in the garden furniture market. XYZ Ltd is the largest producer of garden furniture in the country. It produces 70% of all the garden furniture manufactured, while the second largest manufacturer produces less than 5% of the garden furniture for the country. Which power does XYZ Ltd possess?
- A. Purchasing power
- B. Supplier bargaining power
- C. Substitute power
- D. Buyer bargaining power
Answer: B
NEW QUESTION # 131
When devising a business case for purchasing a new copier, Maria analyses its whole-life costs as following:
Though cost generating activities are identified, she has not categorised the costs. What is the total value of copier's end of life costs?
- A. $75
- B. $150
- C. $450
- D. $300
Answer: B
Explanation:
Life cycle costing is a key asset management tool that takes into account the whole of life implications of planning, acquiring, operating, maintaining and disposing of an asset.
The process is an evaluation method that considers all ownership and management costs. These include;
- Concept and definition;
- Design and development;
- Manufacturing and installation;
- Maintenance;
- Support services; and
- Retirement, remediation and disposal costs.
End of life costs often comprise of decommissioning, removing and disposal costs. In the copier scenario, the end of life costs equal to removal cost, which is $150.
Reference:
- Life Cycle Cost Guidelines (dlgsc.wa.gov.au)
- CIPS study guide page 36-40
LO 1, AC 1.2
NEW QUESTION # 132
Lider Ltd is a leading bathroom furniture manufacturer in Indi
a. The company has more than 30 years experience in the market with extended knowledge of engineering and customers' taste. Lider is planning to launch a new type of bath fitting next year which offers Bluetooth connectivity and thermostat display. The company gathers a team of multi-disciplines, including engineering, procurement, sales and marketing. At the first team meeting, the project leader tells the team to discuss which functions will be valued by the customers, and how to deliver those functions with the lowest costs possible. Which of the following describes the process that the project team is undertaking?
- A. Cost analysis
- B. Just in time
- C. Value engineering
- D. Standardisation
Answer: C
Explanation:
From the scenario, you can see that the project team is developing a new product. They start with analysing the functions, and the costs of delivering those functions. This is a typical process of value engineering. You may read more on value engineering from the reference paper.
Reference:
- CIPS study guide page 171-173
- Value Analysis - Norwood Whittle (cimaglobal.com)
- A CASE STUDY ANALYSIS THROUGH THE IMPLEMENTATION OF VALUE ENGI-NEERING (researchgate.net) LO 3, AC 3.4
NEW QUESTION # 133
Which of the following events would increase the number of suppliers in a particular market?
- A. Introduction of minimum wage regulations
- B. High and increasing levels of investment required to enter the market
- C. Requirement for all companies to have 10,000 or more employees
- D. De-regulation of a previously government-run industry
Answer: D
Explanation:
Detailed Explanation:De-regulation removes barriers to entry, encouraging new suppliers to enter the market. Other factors, like high investment or stringent requirements, limit supplier participation. Reference:
CIPS Level 4, Market Entry and Supply Chain Factors.
NEW QUESTION # 134
Which of the following factors is most likely to be a barrier to new entrant in agriculture?
- A. Brand recognition
- B. Capital requirement
- C. High margins
- D. Reputation within the industry
Answer: B
Explanation:
Barriers to Entry to Agriculture: If stakeholders are going to address the need for new, conserva-tion-minded farmers, they must understand the barriers these farmers encounter when transitioning into the profession. A review of the literature revealed a number of barriers-most of them structural-to entry to agriculture. While each barrier is distinct, they are all interconnected. Though not an exhaustive list, the following barriers are ones that were most frequently mentioned in the literature:
- Access to Affordable Land
- Startup Capital
- Lack of Agricultural Knowledge and Experience
- Lack of Knowledge about Farm Business Planning
- Discrimination
- Student Loans
- Limited Access to Markets
- Affordable Housing and Affordable Healthcare
...
Source: Exploring the Barriers to Entry to Agriculture: Challenges Facing Beginning Farmers in North Carolina - Kelley Robbins-Thompson Reference:
LO 2, AC 2.2
NEW QUESTION # 135
Royal Navy is preparing a through-life contract. They put to the contract a term on rectification of operational defects and planning and delivery of Fleet Time Support Periods. Which part of through-life requirement does this term belong to?
- A. Customer support
- B. Manufacture
- C. Installation
- D. In-service support
Answer: D
Explanation:
There are 6 main components of the through-life requirements of an asset: Design, Manufacture, Installation, In-service support, Decommission and disposal and Customer support.
Rectification of operational defects and planning and delivery of Fleet Time Support Periods are maintenance activities which belong to in-service support. You may have chosen Customer support. However, in through-life asset management context, customer support does not include maintenance services. Instead, it is the services that go along the stages of asset life. It may include consulting, communication and information exchange.
Source: Andrew Graves
Reference:
LO 3, AC 3.2
NEW QUESTION # 136
Why is the specification considered as the most important document in procurement?
- A. It provides a mean to appraise the performance of supplier
- B. It eliminates all possible supply risks
- C. It always shifts the balance of bargaining power in favour of the buyer
- D. It helps the buyer to gain at supplier's loss
Answer: A
Explanation:
Specification is the most important document in procurement because it sets out the quality which supplier must provide. If there is no spec or the spec lacks clarity and details, supplier's perfor-mance may vary and possibly lower than actual requirements. This puts the buyer at risks. On the other hand, if the spec is clear and detailed, the supplier is liable to provide 'fit for purpose' products or perform the service at required level of quality. This will ensure that the buyer achieve 'Right Quality'.
Reference:
- CIPS study guide page 116-130
- How fitness for purpose works - Evocurement
LO 3, AC 3.1
NEW QUESTION # 137
ABC Ltd has recently set up a stationery contract with a large stationery provider, obtaining fixed prices on core stationery items. The brochures have been distributed within ABC Ltd and one of the key users wants to order a corner desk and office chair from the brochure. Is this within scope?
- A. No, because the contract is for stationery only and not furniture
- B. Yes, because the office equipment is in the brochure and must be covered
- C. Yes, because the contract is with the company and not just stationery
- D. No, because the corner desk wouldn't match existing furniture
Answer: A
NEW QUESTION # 138
Which of the following statements is true about product life cycle?
- A. The price remains static throughout the product life cycle
- B. The price competition will be the fiercest at the declining stage because the inventories are plentiful
- C. If price skimming is adopted, the supplier will gradually lower the price when it attracts enough buyers
- D. Sale volume will be the highest at the introductory stage
Answer: C
Explanation:
A product's life cycle portrays the length of time a product is in the market; from the beginning of its introduction to consumers until it is removed from shelves and phased out. This cycle is often divided into four phases: introduction, growth, maturity, and decline. Depending on the relevant stage, companies will set an according strategy to achieve their desired targets. Pricing and promotions play a pivotal role in the design of these product life cycle strategies. Therefore, product life cycle management, the process of strategizing ways to continuously support and maintain a product, is seen more and more at pricing mature players and could bring real value to your company.
Introduction phase: during the introduction phase, the new product is introduced to consumers and a substantial amount of money is invested in advertising and marketing campaigns to bring awareness of the product to the customer. In this phase competition is low, but units sold will also correspondingly be quite low as well still. Consumers need to be convinced of the benefits of the product. Lots of articles never make it beyond this phase: e.g. 3D televisions.
Profits in the introduction stage tend to be low or there may even be a loss. This is because the cost of marketing to establish product awareness plus distribution costs can be far higher than the revenue received from sales. This can be offset to a degree by 'skimming' price in the very early stages. Skimming a price is where a business charges the highest price that it thinks the market will bear initially until product recognition brings in other buyers and then the price drop.
Growth phase: when it's shown there is proven demand for the product and consumers are buying it, the next stage will be its growth phase. This phase is punctuated by increasing demand, increas-ing production and an increase in the competitive landscape. Availability of the product is under-standably paramount during this phase, going out of stock is unthinkable during the growth period.
The electric car is an example of a product that is currently in the midst of the growth phase.
Maturity phase: normally the maturity phase is the phase that is characterized by declining production and marketing costs due to synergies and economies of scale. During this phase the first signs of market saturation occur and most consumers or households already own the product. Sales numbers still grow, but at a slower pace. In the maturity phase, price competition becomes intense, a broader range of distribution channels are deployed and competition is more focused on competitive pricing, marginal product differences or the difference in services or promotions. This period in the PLC is often said to be the 'cash-cow period'.
That being said, the idea of 'Maturity from the start' also exists. This occurs when a brand decides to launch a product extension and directly follows up the maturity phase of an earlier version of the product. For example, the iPhoneX followed up from the 'normal' iPhone-series and therefore the iPhoneX never had to undergo the introduction or growth phase, but immediately started in its maturity phase.
Decline phase: the final phase of the PLC is entered once the product loses market share to other, newer products and the competitive landscape becomes too hard to survive. During this stage, de-mand declines, companies are left with overstock with prices and margins getting depressed. Therefore retailers and brands normally start stunting with promotions during the decline of the PLC to sell their final stock.
A well-known example of a product that has been through the decline phase were the Nokia phones; sales results dramatically decreased after the introduction of the iPhone.
Reference:
- CIPS study guide page 90
- Adjusting your Pricing Strategy to the Product Life Cycle Stage (omniaretail.com)
- Price Skimming Definition (investopedia.com)
LO 2, AC 2.2
NEW QUESTION # 139
Which of the following are the fair and reasonable comparators in price analysis? Select TWO that apply:
- A. Competitive bidding
- B. Pricing formula
- C. Cost driver
- D. Price indices
- E. Strike price
Answer: B,D
Explanation:
Price Analysis is the process of deciding if the asking price for a product or service is fair and rea-sonable, without examining the specific cost and profit calculations the vendor used in arriving at the price. It is basically a process of comparing the price with known indicators of reasonableness. When adequate price competition does not exist, some other form of analysis is required. Some reasons that could affect adequate price competition are: specifications are not definitive, tolerances are restrictive, or production capacity limits those eligible to bid.
Examples of other forms of price analysis information include:
* Analysis of previous prices paid
* Comparison of vendor's price with the in-house estimate
* Comparison of quotations or published price lists from multiple vendors
* Comparisons with government agencies (such as GSA in the US) published prices A strike price is the set price at which a derivative contract can be bought or sold when it is exercised. For call options, the strike price is where the security can be bought by the option holder; for put options, the strike price is the price at which the security can be sold. Strike price is also known as the exercise price.
A cost driver is the direct cause of a cost and its effect is on the total cost incurred. For example, if you are to determine the amount of electricity consumed in a particular period, the number of units consumed determines the total bill for electricity. In such a scenario, the number of units of electricity consumed is a cost driver.
NEW QUESTION # 140
At which stage of product life cycle, price competition between sellers will be the most intense?
- A. Maturity stage
- B. Growth stage
- C. Decline stage
- D. Introductory stage
Answer: C
Explanation:
The term product life cycle refers to the length of time a product is introduced to consumers into the market until it's removed from the shelves. The life cycle of a product is broken into four stages-introduction, growth, maturity, and decline.
Chart, line chart Description automatically generated
Source: https://blueoceanoutsource.co.ke/the-product-life-cycle-concept/ At maturity stage, price competition sets in as more and more supply capacity has been added by new entrants, then the competition will be the most intense.
NEW QUESTION # 141
Which of the following is the best definition of target costing?
- A. The total of all costs in acquiring goods or services from the inception of the demand for them until their safe and satisfactory delivery at the point required.
- B. The net present cost of the purchase or project and all future revenues flowing from it discounted back to the present time.
- C. A product cost estimate derived from a competitive market price.
- D. The cost of a product after analysing its components step by step
Answer: C
Explanation:
Target costing is an activity aimed at reducing the life-cycle costs of new products, while ensuring quality, reliability, and other consumer requirements by examining all possible ideas for cost reduction at the product planning, research and development and prototyping phases of production. But it is not just a cost reduction technique; it is part of a comprehensive strategic profit management system.
Reference:
LO 3, AC 3.4
NEW QUESTION # 142
Aldar Properties is a property developer in UAE. In last month, it spent $2,160 for 10 tons of steel. In this month, it had planned 10% increment in budget for steel comparing to last month. But the number of orders boosted and total spend on steel reached $1,992.1 while Aldar has imported 11 tons. What is the main cost driver of steel budget?
- A. Quantity variance
- B. Price variance
- C. Both price and quantity variances
- D. Inflation
Answer: B
Explanation:
In this question, you have to calculate price variance and quantity variance.
Last month, 1 tonne of steel costed $216. This month, the price decreases to $181.1. Price variance = (P1 - P2)*Q2 = ($216-$181.1)*11 = $383.9 Quantity variance = (Q1-Q2)*P1 = -$216 Price variance is greater than quantity variance, therefore, price variance is the main cost driver.
LO 1, AC 1.4
NEW QUESTION # 143
Buyers are more powerful than the supplier when they are purchasing from monopoly market. Is this statement true?
- A. True, suppliers in monopoly market produce homogenous products
- B. False, the buyer will be unable to track and manage supplier's performance
- C. False, buyer will lack negotiating power on cost if the supplier has a monopoly in the market
- D. True, in monopoly market, buyer's switching costs from the incumbent supplier to an-other are relatively low
Answer: C
Explanation:
A monopoly is a market with a single seller (called the monopolist) but with many buyers. In this market, the bargaining power of supplier is higher than of buyer since the supplier is the only seller.
Reference:
- CIPS study guide page 88-92
- Bargaining Power of Suppliers - Factors that Give Suppliers Power (corporatefinanceinsti-tute.com)
- Monopoly - Understanding How Monopolies Impact Markets (corporatefinanceinstitute.com) LO 2, AC 2.2
NEW QUESTION # 144
What is the document that defines the activities, deliverables and timelines a supplier must carry out during contract performance?
- A. Project initial document
- B. Statement of work
- C. Work instruction
- D. Framework agreement
Answer: B
Explanation:
Statement of Work (SoW) is the document that captures and defines all aspects of your project. You'll note the activities, deliverables and the timetable for the project. It's an extremely detailed document as it will lay the groundwork for the project plan.
Project Initial Document is an important document and should precede any specification writing project. It sets out the scope of the project and it is the team's mandate from senior management Work instructions are also called work guides, Standard Operating Procedures (SOPs), job aids or user manuals, depending on the situation. In any case, the purpose of work instructions is to clearly explain how a particular work task is performed.
Framework agreements are arrangements between one or more buyers and one or more suppliers that provide the terms governing contracts to be established for a certain period of time, in particular with regard to price and, where necessary, the quantity envisaged.
NEW QUESTION # 145
Andrew is responsible for procurement of capital assets at Lumber Ltd. He is devising new business case for the purchase of a new band saw. The purchase price of the saw is $50,000. Andrew estimates that the machine will generate $10,000 per year of net cash flow. What is the payback period of this band saw?
- A. 4 years
- B. 5 years
- C. 10 years
- D. 3 years
Answer: B
Explanation:
Payback period is the time in which the initial outlay of an investment is expected to be recovered through the cash inflows generated by the investment. It is one of the simplest investment apprais-al techniques.
Since cash flow estimates are quite accurate for periods in the near future and relatively inaccurate for periods in distant future due to economic and operational uncertainties, payback period is an indicator of risk inherent in a project because it takes initial inflows into account and ignores the cash flows after the point at which the initial investment is recovered.
The formula to calculate the payback period of an investment depends on whether the periodic cash inflows from the project are even or uneven.
If the cash inflows are even (such as for investments in annuities), the formula to calculate payback period is:
Payback Period = Initial Investment / Net Cash Flow per Period
When cash inflows are uneven, we need to calculate the cumulative net cash flow for each period and then use the following formula:
Payback Period =A + (B/C)
Where,
A is the last period number with a negative cumulative cash flow;
B is the absolute value (i.e. value without negative sign) of cumulative net cash flow at the end of the period A; and C is the total cash inflow during the period following period A Cumulative net cash flow is the sum of inflows to date, minus the initial outflow.
Reference:
- Payback Period | Formulas, Calculation & Examples (xplaind.com)
- CIPS study guide page 44-47
LO 1, AC 1.3
NEW QUESTION # 146
Facing fiercer competition at home and abroad, IKEA, the leading furniture retailer, needs to im-prove its competitiveness. In order to do this, IKEA must decrease operating costs and improve quality of current and new retail stores. The company establishes a project team. The job of the team is to collect data on performance from multiple stores in several countries, then select the best performing one. The team will work closely with best performing store and study its processes. After the research, the team will recommend best practices to other retail stores. IKEA management can also apply these practices to new stores in the future. Which of the following correctly describe the process undertaken by IKEA project team?
- A. Internal audit
- B. Site visit
- C. Competitive benchmarking
- D. Internal benchmarking
Answer: D
Explanation:
Basically, IKEA project team is undertaking the following process:
A picture containing text, businesscard Description automatically generated
This is a typical benchmarking process. Benchmarking is defined as the process of measuring products, services, and processes against those of organizations known to be leaders in one or more aspects of their operations. Benchmarking provides necessary insights to help you understand how your organization compares with similar organizations, even if they are in a different business or have a different group of customers.
In the scenario, benchmarking process is undertaken within subsidiaries of IKEA, thus it is internal.
NEW QUESTION # 147
Which of the following problems may be identified as open-ended problems? Select TWO that apply:
- A. Logistics costs incur a large portion in wholesale prices
- B. A cyber attack takes down whole company's IT system
- C. Engine failures cause flight cancellations.
- D. The suppliers don't comply with the company's policy on underage labour.
- E. Shortage of key medicines in healthcare industry
Answer: A,D
Explanation:
Open-ended problem is something stopping the achievement of an objective or blocking progress. To solve this type of problems, procurement professional should find a way to unblock the block-age. In the above question, high logistics cost is an obstacle to cost cutting objective while suppli-er's incompliance prevents the company to achieve its sustainable objective.
NEW QUESTION # 148
When analysing competitive forces in a market, which of the following can be seen as a supplier having low bargaining power? Select TWO that apply.
- A. Low levels of innovation
- B. Low competition in the marketplace
- C. Low switching costs between products
- D. A high number of substitutes available
- E. High quality products
Answer: C,D
NEW QUESTION # 149
A charity is reviewing their spend and budget after an operation in flooded areas. They realise that the operators save money against the budgeting plan. This saving is known as...?
- A. Positive variance
- B. Negative variance
- C. Negative budget
- D. Positive budget
Answer: B
Explanation:
The difference between the actual spend and budgeted spend is known as variance. The formula for variance is:
Variance = Actual spend - Budgeted spend
Variances can be adverse/unfavourable or favourable ie they can be positive or negative.
Be very careful with these terms. A positive or a negative variance may be favourable or it may be adverse/ unfavourable.
Adverse variances
Adverse variances are those variances that are unfavourable to the firm. Examples would be sales below plan; costs above budget, cash receipts lower than expected, and overtime payment more than forecast.
Favourable variances
Favourable variances are those variances that are beneficial to the business. Examples would be sales ahead of plan, costs below budget, and wages below forecast.
Positive variance
A positive variance occurs where 'actual' exceeds 'planned' or 'budgeted' value. Examples might be actual sales are ahead of the budget.
Negative variance
A negative variance occurs where 'actual' is less than 'planned' or 'budgeted' value. Examples would be when the raw materials cost less than expected, sales were less than predicted, and labour costs were below the budgeted figure.
When the operators create saving, it means that the Actual spend is less than Budgeted spend. Therefore the variance is negative.
Reference:
- Variance analysis
- CIPS study guide page 57-59
LO 1, AC 1.4
NEW QUESTION # 150
The position of a product in its life cycle can affect the price that suppliers set. Is this statement correct?
- A. No, in market economy, the state decides the price of all goods and services
- B. Yes, each stage in product life cycle requires different levels of investment in promotion and distribution
- C. No, customer's perception of value is the ultimate determinant of the suppliers' price
- D. Yes, it is always the only factor determining the price
Answer: B
Explanation:
A firm also has to look at a myriad of other factors before setting its prices. Those factors include the offering' s costs, the demand, the customers whose needs it is designed to meet, the external environment-such as the competition, the economy, and government regulations-and other aspects of the marketing mix, such as the nature of the offering, the current stage of its product life cycle, and its promotion and distribution. If a company plans to sell its products or services in international markets, research on the factors for each market must be analyzed before setting prices. Organizations must understand buyers, competitors, the economic conditions, and political regulations in other markets before they can compete successfully.
[...]
The costs of the product-its inputs-including the amount spent on product development, testing, and packaging required have to be taken into account when a pricing decision is made. So do the costs related to promotion and distribution. For example, when a new offering is launched, its promotion costs can be very high because people need to be made aware that it exists. Thus, the offering's stage in the product life cycle can affect its price.
NEW QUESTION # 151
Which of the following are most likely to increase the buyer's bargaining power?
1. Buyers are price sensitive
2. High set-up cost for new entrants
3. Threat of forward integration is high
4. Threat of backward integration is significant
- A. 3 and 4 only
- B. 2 and 3 only
- C. 2 and 4 only
- D. 1 and 4 only
Answer: D
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:
LO 2, AC 2.2
NEW QUESTION # 152
Azram, a procurement analyst, has been tasked with applying whole life asset management when purchasing a piece of laboratory equipment. Was this the correct course of action?
- A. No, because this covers various transactional costs
- B. Yes, because this focuses only on the price of the equipment
- C. No, because this considers the costs of quality
- D. Yes, because this considers all associated costs
Answer: D
NEW QUESTION # 153
Which of the following is the new technology that has impact on manufacturing sector?
- A. Social Media
- B. E-commerce
- C. Blockchain
- D. Robotics
Answer: D
Explanation:
Robots in manufacturing help to create jobs by reshoring more manufacturing work. Robots protect workers from repetitive, mundane and dangerous tasks, while also creating more desirable jobs, such as engineering, programming, management and equipment maintenance.
LO 2, AC 2.1
NEW QUESTION # 154
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