Free Practice Questions for CIPS L4M2 Exam

Detailed Explanation:Acceptance testing verifies that the supplied product meets the buyer’s specification before it is formally accepted. This type of testing typically occurs during delivery or installation phases. Reference: CIPS Level 4, Quality Assurance in Procurement.

Explanation

RAQSCI stands for Regulatory, Availability, Quality, Service, Cost, Innovation.

LO 1, AC 1.1

Explanation

Writing a high-quality specification is very crucial in every purchase. In through-life management, it is even more important since the assets often have very high value. Defining user requirement is the first step to write a specification. Without doing this right, many problems may arise in later stages.

Explanation

The buyer won't pay the supplier until next month. This is a liability to the buyer. This amount can be recorded as accrued expense or accounts payable. On the other hand, the supplier has not sent the invoice, so it should be accrued expense.

Both accounts payables and accrued expenses are liabilities. Accounts payable is the total amount of short-term obligations or debt a company has to pay to its creditors for goods or services bought on credit. With accounts payables, the vendor's or supplier's invoices have been received and recorded.

On the other hand, accrued expenses are the total liability that is payable for goods and services that have been consumed by the company or received. However, accrued expenses are those bills in which an invoice or bill has not yet been received. As a result, accrued expenses can sometimes be an estimated amount of what's owed, which is adjusted later to the exact amount, once the invoice has been received.

Conversely, accounts payable should represent the exact amount of the total owed from all of the invoices received.

Explanation

In this question, you should understand the concept of cash flow and formula of cash flow. Cash flow calculates the physical money moving in and out a company's bank balance. The cash flow from sale activity is:

cash flow from sale = account receivable at beginning of the year + revenue - account receivable at the end of the year = $450,000 + $5,000,000 - $525,000 = $4,925,000

75% of direct costs was bought by credit, therefore, the company spent 25% on direct cost: -$2,500,000*25/100 = -$625,000

25% of indirect costs was bought on credit. Cash flow out on indirect costs is: -$3,000,000*75/100 = -$2,250,000

Company spent $1,500,000 on new assets funded by a loan of $1,000,000. Cash flow out from this activity is -$500,000

Company received $150,000 from selling old assets

Dividends have not been paid for another 2 months, thus, they are not accounted as cash flow out.

The bank balance at the end of the year is: $175,000 + $4,925,000 - $625,000 - $2,250,000 - $500,000 + $150,000 = $1,875,000

LO 1, AC 1.4

Explanation

According to Kraljic portfolio matrix, the low-value items with high supply risk are bottleneck items.

The purchasing strategy that is commonly recommended for these products is primarily based on acceptance of the dependence and reduction of the negative effects of the unfavourable position. An alternative strategy suggested by purchasing practitioners is to find other suppliers and move towards the non-critical quadrant.

- Accept dependence, reduce negative consequences: The main focus of this strategy is to assure supply, if necessary even at additional cost. Examples of this strategy are keeping extra stocks of the materials concerned or developing consigned stock agreements with suppliers. By performing a risk analysis firms can identify the most important bottleneck products and consider the implications. A possible action for dealing with unexpected bad dependence positions for certain products is to employ contingency planning.

- Reduce dependence and risk, find other solutions: This strategy is geared towards reducing the dependence on the supplier. The most common way to achieve this is to broaden the specifications of the product or to search for new suppliers.

The procurement team in the scenario has selected reducing dependency by finding alternatives. This is a right strategy for bottleneck item.

Explanation

The buying organisation is keen to encourage innovation so they should use the outcome or output based specification. In an outcome-based specification, umbrella statements like 'good quality', 'ambient temperature', 'convenient way' are often used. This may confuse the suppliers, and it's hard to check the solution that supplier offers. On the other hand, ouput-based specifications often include measurable requirements. For example, a specification for air conditioning system states that the system should maintain the room temperature at 19-24 degrees Celsius. Therefore, output specification is more appropriate in this case.

Explanation

This International Standard (ISO 27001:2013) has been prepared to provide requirements for establishing, implementing, maintaining and continually improving an information security management system. The adoption of an information security management system is a strategic decision for an organization. The establishment and implementation of an organization’s information security management system is influenced by the organization’s needs and objectives, security requirements, the organizational processes used and the size and structure of the organization. All of these influencing factors are expected to change over time.

The information security management system preserves the confidentiality, integrity and availability of information by applying a risk management process and gives confidence to interested parties that risks are adequately managed.

It is important that the information security management system is part of and integrated with the organization’s processes and overall management structure and that information security is considered in the design of processes, information systems, and controls. It is expected that an information security management system implementation will be scaled in accordance with the needs of the organization.

This International Standard can be used by internal and external parties to assess the organization's ability to meet the organization’s own information security requirements.

The order in which requirements are presented in this International Standard does not reflect their importance or imply the order in which they are to be implemented. The list items are enumerated for reference purpose only.

ISO/IEC 27000 describes the overview and the vocabulary of information security management systems, referencing the information security management system family of standards (includ-ing ISO/IEC 27003[2], ISO/IEC 27004[3] and ISO/IEC 27005[4]), with related terms and defini-tions.

Explanation

Copious amounts of waste can occur in the workplace, particularly in a manufacturing process, but do you know what the eight most commons wastes are and how they impact your organization?

Taiichi Ohno, considered the father of Toyota Production System, created a lean manufacturing framework, which was based on the idea of preserving (or increasing) value with less work. Any-thing that doesn't increase value in the eye of the customer must be considered waste, or "Muda", and every effort should be made to eliminate that waste. The following 8 lean manufacturing wastes, mostly derived from the TPS, have a universal application to businesses today. The acro-nym for the eight wastes is DOWNTIME. Downtime stands for:

- Defects

- Overproduction

- Waiting

- Not utilizing talent

- Transportation

- Inventory excess

- Motion waste

- Excess processing

OWN-IT is the acronym for the process of collecting and analysing the data and information needed in any field

SCAMPER is acronym for options addressing the underlying issues and achieving target

VA/VE is value analysis and value engineering

LO 3, AC 3.4

Explanation

Overhead variances arise when the actual overhead costs incurred differ from the expected amounts. Managers want to understand the reasons for these differences, and so should consider computing one or more of the overhead variances described below. Each of these variances applies to a different aspect of overhead expenditures. It is not necessary to calculate these variances when a manager cannot influence their outcome.

Fixed Overhead Spending Variance

The fixed overhead spending variance is the difference between the actual fixed overhead expense incurred and the budgeted fixed overhead expense. An unfavorable variance means that actual fixed overhead expenses were greater than anticipated. The formula for this variance is:

Actual fixed overhead - Budgeted fixed overhead = Fixed overhead spending variance

The amount of expense related to fixed overhead should (as the name implies) be relatively fixed, and so the fixed overhead spending variance should not theoretically vary much from the budget.

Fixed Overhead Volume Variance

The fixed overhead volume variance is the difference between the amount of fixed overhead actually applied to produced goods based on production volume, and the amount that was budgeted to be applied to produced goods. For example, a company budgets for the allocation of $25,000 of fixed overhead costs to produced goods at the rate of $50 per unit produced, with the expectation that 500 units will be produced. However, the actual number of units produced is 600, so a total of $30,000 of fixed overhead costs are allocated. This creates a fixed overhead volume variance of $5,000.

Variable Overhead Efficiency Variance

The variable overhead efficiency variance is the difference between the actual and budgeted hours worked, which are then applied to the standard variable overhead rate per hour. The formula is:

Standard overhead rate x (Actual hours - Standard hours)

= Variable overhead efficiency variance

A favorable variance means that the actual hours worked were less than the budgeted hours, resulting in the application of the standard overhead rate across fewer hours, resulting in less expense being incurred. However, a favorable variance does not necessarily mean that a company has incurred less actual overhead, it simply means that there was an improvement in the allocation base what was used to apply overhead.

Variable Overhead Spending Variance

The variable overhead spending variance is the difference between the actual and budgeted rates of spending on variable overhead. The variance is used to focus attention on those overhead costs that vary from expectations. The formula is:

Actual hours worked x (Actual overhead rate - standard overhead rate)

= Variable overhead spending variance

A favorable variance means that the actual variable overhead expenses incurred per labor hour were less than expected.

In the study guide, CIPS splits overhead variance into volume and expenditure variance. They can be understood as variable and fixed overhead variance respectively.