CIPS L4M2 Exam Practice Test Instant Access

Question 1

A company has installed a new piece of capital equipment but needs to arrange a maintenance contract for three years. The company wants to know as accurately as possible what this price will be for the full contract. What would be an appropriate type of pricing mechanism to use when asking suppliers to quote prices?

AFixed price with adjustment for inflation

BFixed price

CCost plus percentage fee

DCost plus fixed fee

Answer : A

A fixed price with adjustment for inflation provides cost predictability while accounting for potential increases due to inflation. This strikes a balance between fixed costs and market realities. Reference: CIPS Level 4, Pricing Strategies.

Question 2

Which of the following are advantages of zero-based financial budgeting?

Use of previous year figures

Emphasis on short-term planning

Budget treated as flexible

Focus on operational issues

A1 and 4 only

B2 and 4 only

C3 and 4 only

D1 and 2 only

Answer : C

Zero-based budgeting emphasizes starting from scratch and justifying all expenses.

3 (Budget flexibility): Ensures resources are allocated dynamically based on needs.

4 (Focus on operational issues): Encourages alignment with operational priorities rather than historical trends.

Using prior figures (1) is contrary to zero-based budgeting principles. Reference: CIPS Level 4, Financial Planning and Budgeting.

Question 3

The procurement team of an IT hardware manufacturer has been set a target by senior management to reduce the rates paid to the sole supplier of a new and innovative power-saving battery. Which action should the procurement team first consider?

AOffering a framework agreement

BAgreeing rebate thresholds

CDual or multiple sourcing

DOffering economies of scale

Answer : C

Dual or multiple sourcing introduces competition, reducing the sole supplier's bargaining power and leading to cost reductions. Framework agreements (A) or economies of scale (D) may not address the immediate need to reduce rates. Reference: CIPS Level 4, Sourcing Strategies.

Question 4

An IT department has tasked procurement to help produce a conformance specification for new company laptops. Which factor is common within a conformance specification?

AMeets the operational requirements

BTends to be short and specific

CAllows flexibility in the offering

DMeets the specification standard

Answer : D

Conformance specifications outline specific technical standards or requirements that a product must meet. These ensure uniformity and compliance but do not allow flexibility for suppliers to innovate. Reference: CIPS Level 4, Specification Standards.

Question 5

Category buyer Raheem has been tasked with receiving innovative bids from coaching and development service providers. How can he achieve this? Select TWO that apply.

AApply early supplier involvement

BInvite a small group of suppliers

CUse a conformance-based specification

DUse an outcome-based specification

EApply standards within the specification

Answer : A, D

A (Early supplier involvement): Engaging suppliers early fosters innovation by leveraging their expertise in developing solutions.

D (Outcome-based specification): Focusing on outcomes rather than rigid inputs encourages creative and flexible proposals.

Conformance specifications (C) restrict innovation, and standards (E) limit supplier flexibility. Reference: CIPS Level 4, Innovation in Procurement Specifications.

Question 6

Which of these causes variances in budgets?

Quantity discounts

Substitute goods

Loan repayments

Corporation tax

A2 and 4 only

B1 and 2 only

C2 and 3 only

D1 and 4 only

Answer : B

Quantity discounts: Changes in order quantities can lead to cost savings, impacting budget forecasts.

Substitute goods: Using alternative products can alter planned expenses, causing budget deviations.

Loan repayments and taxes are fixed financial obligations and do not directly impact procurement budgeting. Reference: CIPS Level 4, Cost Management.

Question 7

A supplier of software has received a request to quote for a product. The software supplier considers that the buying organisation making the request provides relatively little benefit or alignment to their own strategy. Which one of the following options describes how the supplier might react to the buyer?

AThe supplier will seek to exploit the situation and drive a high price

BThe supplier will attempt to foster a strategic relationship with the buyer

CThe supplier will provide the buyer with attractive additional software support benefits

DThe supplier will seek to offer the lowest price possible

Answer : A

When the buyer does not align with the supplier's strategic interests, the supplier may take advantage by charging higher prices to compensate for the perceived lack of value. This approach maximizes the supplier's benefit from a transactional relationship. Reference: CIPS Level 4, Supplier Engagement and Negotiation Strategies.

CIPS L4M2 Defining Business Needs Exam Practice Test