CIPS L4M2 Exam Questions Instant Access - No Installation Required

Question 1

This is the information on an organisation's activities over the past year

* Sale were $5,000,000. The value of accounts receivable was $450,000 at the start of the year and $525,000 at the end of the year

* The value of direct costs was $2,500,000 and 75% of this was bought on credit

* Indirect costs were $3,000,000 and 25% of this was bought on credit

* During the year the organization spent $1,500,000 on new assets and sold $150,000 of old assets. $1,000,000 of the spend on assets was funded by a bank loan

* The organization declared a dividend of $200,000 at the end of the year but this was not paid for another two months

* Opening balance was $175,000

Which of the following is the bank balance of that organization at the end of the year?

A$1,675,000

B$1,875,000

C$1,700,000

D$2,025,000

Answer : B

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

Question 2

Which of the following is an useful tool for value engineering?

ASAMOA

BKraljic Portfolio Matrix

CStar-burst method

DKano model

Answer : D

Explanation

Value Engineering (VE) is concerned with new products. It is applied during product development. The focus is on reducing costs, improving function or both, by way of teamwork-based product evaluation and analysis. This takes place before any capital is invested in tooling, plant or equipment.

This is very significant, because according to many reports, up to 80% of a product's costs (throughout the rest of its life-cycle), are locked in at the design development stage. This is under-standable when you consider the design of any product determines many factors, such as tooling, plant and equipment, labour and skills, training costs, materials, shipping, installation, maintenance, as well as decommissioning and recycle costs.

The Kano model is a theory for product development and customer satisfaction developed in the 1980s by Professor Noriaki Kano, which classifies customer preferences into five categories. Both Kano model and Value Engineering aims at optimising new product, so they can be combined to-gether. CIPS L4M2 study guide consider Kano model is a tool of Value Engineering

Example of Kano model (source: Wikipedia)

LO 3, AC 3.4

Question 3

Synergy Ltd is a fast-growing tool and hardware retailer. The company's customer services team has been using Excel worksheets to manage customer relationships. When the company is expend-ing its market presence, this way of working leads to poorer customer services as the database is scattered around in spreadsheet, leading to patchy and inconsistent conversations with customers. The company decides to purchase a CRM system. What requirement should Synergy's procurement team take into account in the specification for CRM system?

ATotal number of the supplier's employees

BThe ability to import bulk data from Excel spreadsheets

CThe relative size of the potential suppliers to Synergy

DThe form and reference number of the purchase order

Answer : B

The purpose of this QUESTIO N NO: is to test the student's ability to identify the problems and translate those problems to actionable requirements before communicating with the suppliers. The scenario suggests that Synergy Ltd's customer services team is using Excel spreadsheets, they lack a centralised customer database. This leads to problems in communications with customers.

A CRM system can solve the communication problem. But a QUESTIO N NO: arises: If a CRM system is employed, how will the previous data be imported? If the CRM system can support bulk import from Excel tables, it will save a lot of time.

LO 1, AC 1.1

Question 4

Azram, a procurement analyst, has been tasked with applying whole life asset management when purchasing laboratory equipment. Was this the correct course of action?

AYes, because this focuses only on the price of the equipment

BYes, because this considers all associated costs

CNo, because this considers the costs of quality

DNo, because this covers various transactional costs

Answer : B

Comprehensive and Detailed Explanation (from CIPS L4M2 -- Whole Life Costing)

Whole life asset management (WLC) considers all costs associated with acquiring, operating, maintaining, and disposing of an asset.

This includes:

Purchase price

Operating and maintenance costs

Energy consumption, training, downtime, disposal

Therefore, Option B is correct --- WLC takes a complete, long-term view, not just purchase price.

Relevant L4M2 references:

''Whole life costing and total cost of ownership (TCO)''

''Using WLC in capital investment decisions''

Question 5

The main benefit of using standards in a specification is ...

Athat British standards are aligned with all other international standards

Bthat standards provide a clear guide with no ambiguity or uncertainty

Cthat standards allow the supplier to give the buyer a bespoke product

Dit will ensure the latest technology standards are kept up to date

Answer : B

Question 6

Which of the following would be an example of direct costs for a decorating contractor?

APaint

BLadder

CVan

DElectricity

Answer : A

Comprehensive and Detailed Explanation (paraphrased from CIPS L4M2 content)

CIPS L4M2 explains that direct costs are those that can be directly traced to a specific product, job, or project.

For a decorating contractor:

Paint (A) is clearly a direct cost -- it is consumed on specific jobs, and the quantity and cost can be directly allocated to each project.

Items such as:

Ladder (B) -- a piece of equipment used across many jobs. Its cost is typically spread over multiple projects; this makes it an indirect (overhead) cost.

Van (C) -- used for transport across many contracts, again an indirect or overhead cost.

Electricity (D) -- usually treated as an indirect or overhead cost, not allocated to a single job unless specially metered.

Understanding the difference between direct and indirect costs is important for whole-life costing and building a business case, because misclassifying them can distort unit costs and profitability.

Relevant CIPS L4M2 areas:

Cost classification: direct vs indirect, fixed vs variable

Costing and pricing in business cases

Whole-life cost and cost build-up analysis

Question 7

Which of the following specific markets is most likely to have product shortage by nature?

ARetail

BFinancial

CConstruction

DServices

EAgriculture

Answer : E

Explanation

Products used in agriculture can be subject to shortage due to natural disasters.

LO 2, AC 2.1

CIPS Defining Business Needs L4M2 Exam Questions