CIPS L4M2 Questions With Verified Correct
Answers!!
WLC - planning - ✔✔Determines the budget for the asset being purchased, helps improve
the specification to reduce cost, and simulation or decision support models can be used to assist.
WLC - preparation - ✔✔Testing the various models for calculating WLC and is necessary to
choose the best model.
WLC - implementation - ✔✔Implements the model to get the results. A review and
intervals for regular recalculation.
Acquisition, operation and disposal - ✔✔There is a vital difference between purchase
price and total cost of ownership. This includes 3 categories.
Cost based pricing - ✔✔Allows the supplier to cover its costs and make a profit.
Limits to cost based pricing - ✔✔Ignores competition and other influences on pricing and
are quite inflexible. They also don't give a supplier an incentive to reduce or manage costs.
Cost behaviour - ✔✔The way in which costs of outputs are affected by fluctuations in
the level of activity.
Open book costing - ✔✔The supplier provides the buyer with information about their costs
to be scrutinised e.g. reassures there is VFM, facilitates cost based pricing.
Costing methods - ✔✔Marginal, absorption, activity based
Marginal costing method - ✔✔Is widely used by managers and is useful in the distinction
between variable costs and fixed costs. Variable costs are always the relevant costs in terms
of decision making.
,Absorption costing method - ✔✔The challenge is to attribute a 'fair' amount of fixed costs
to each unit of production output. Traditionally this has been done by determining the amount
of some measurable resource consumed in a production period and the overheads of that
resource.
Activity based costing method - ✔✔This is based on the identification of cost drivers and
cost pools. There is a difference between purchase price and total cost of ownership. Best value
= the lowest whole life cost.
Profit - ✔✔The difference between the selling price of a product and the cost of producing
the product.
Cash flow forecast - ✔✔Is designed to identify the sources and amounts of cash inflows,
and the destinations and amount of cash outflows, over a given budgetary period.
Cash flow projection - ✔✔Designed to project the future cash position of the firm or project.
Cash flow management - ✔✔Ensuring that we time incoming and outgoing cash flows.
Business case - ✔✔Is the justification for undertaking an action and its purpose is to
seek approval and finance for the recommended action.
Companies will use a substitute product/service if the economics of doing so are favourable. This
depends on 3 things: - ✔✔The relationship between the value the org gets from the product and
it's price, how costly the change would be, and the inclination of the buyer to make a change.
Line of best fit - ✔✔The line that goes approx. through the middle of the data points with
an equal number of data points above and below it.
Open-ended problems - ✔✔When something is stopping the achievement of an objective
or blocking progress e.g. agreement from senior management is required before progressing.
, Closed problems - ✔✔These appear when something happens that should not have
happened e.g. price of raw materials suddenly increase.
Primary market data - ✔✔Is collected for a specific purpose, direct from relevant sources
e.g. customers. This data is tailor made and is considered direct and a reliable source. However
it is timely, costly and possibly considered biased.
Requests for information - ✔✔If further detail/analysis is required to establish a full list
of requirements. This can be requested from suppliers.
Secondary data - ✔✔Data that has already been gathered and assembled for other purposes
e.g trade publications. This data is readily available and is certified as a recognised source.
This is also considered 'desk research'. Further examples, markets reports, official statistics,
internet.
Direct costs - ✔✔Costs directly associated with the production of a service or good.
Indirect costs - ✔✔General running costs that cannot easily be attributed to specific
products (also known as overheads). Expenditure on labour, materials and other items.
Fixed costs - ✔✔Costs that do not vary irrespective of the volume of activity in a business
e.g.
salaries of permanent staff.
Variable costs - ✔✔A cost that varies with the level of output of an organisation.
Semi-variable costs - ✔✔A cost made up of both fixed and variable costs.
Budgets - ✔✔Budgets plan quantified in monetary terms and are important for time
phased income and expenditure management, to understand incoming and outgoing cash flow
over a specified period.
Answers!!
WLC - planning - ✔✔Determines the budget for the asset being purchased, helps improve
the specification to reduce cost, and simulation or decision support models can be used to assist.
WLC - preparation - ✔✔Testing the various models for calculating WLC and is necessary to
choose the best model.
WLC - implementation - ✔✔Implements the model to get the results. A review and
intervals for regular recalculation.
Acquisition, operation and disposal - ✔✔There is a vital difference between purchase
price and total cost of ownership. This includes 3 categories.
Cost based pricing - ✔✔Allows the supplier to cover its costs and make a profit.
Limits to cost based pricing - ✔✔Ignores competition and other influences on pricing and
are quite inflexible. They also don't give a supplier an incentive to reduce or manage costs.
Cost behaviour - ✔✔The way in which costs of outputs are affected by fluctuations in
the level of activity.
Open book costing - ✔✔The supplier provides the buyer with information about their costs
to be scrutinised e.g. reassures there is VFM, facilitates cost based pricing.
Costing methods - ✔✔Marginal, absorption, activity based
Marginal costing method - ✔✔Is widely used by managers and is useful in the distinction
between variable costs and fixed costs. Variable costs are always the relevant costs in terms
of decision making.
,Absorption costing method - ✔✔The challenge is to attribute a 'fair' amount of fixed costs
to each unit of production output. Traditionally this has been done by determining the amount
of some measurable resource consumed in a production period and the overheads of that
resource.
Activity based costing method - ✔✔This is based on the identification of cost drivers and
cost pools. There is a difference between purchase price and total cost of ownership. Best value
= the lowest whole life cost.
Profit - ✔✔The difference between the selling price of a product and the cost of producing
the product.
Cash flow forecast - ✔✔Is designed to identify the sources and amounts of cash inflows,
and the destinations and amount of cash outflows, over a given budgetary period.
Cash flow projection - ✔✔Designed to project the future cash position of the firm or project.
Cash flow management - ✔✔Ensuring that we time incoming and outgoing cash flows.
Business case - ✔✔Is the justification for undertaking an action and its purpose is to
seek approval and finance for the recommended action.
Companies will use a substitute product/service if the economics of doing so are favourable. This
depends on 3 things: - ✔✔The relationship between the value the org gets from the product and
it's price, how costly the change would be, and the inclination of the buyer to make a change.
Line of best fit - ✔✔The line that goes approx. through the middle of the data points with
an equal number of data points above and below it.
Open-ended problems - ✔✔When something is stopping the achievement of an objective
or blocking progress e.g. agreement from senior management is required before progressing.
, Closed problems - ✔✔These appear when something happens that should not have
happened e.g. price of raw materials suddenly increase.
Primary market data - ✔✔Is collected for a specific purpose, direct from relevant sources
e.g. customers. This data is tailor made and is considered direct and a reliable source. However
it is timely, costly and possibly considered biased.
Requests for information - ✔✔If further detail/analysis is required to establish a full list
of requirements. This can be requested from suppliers.
Secondary data - ✔✔Data that has already been gathered and assembled for other purposes
e.g trade publications. This data is readily available and is certified as a recognised source.
This is also considered 'desk research'. Further examples, markets reports, official statistics,
internet.
Direct costs - ✔✔Costs directly associated with the production of a service or good.
Indirect costs - ✔✔General running costs that cannot easily be attributed to specific
products (also known as overheads). Expenditure on labour, materials and other items.
Fixed costs - ✔✔Costs that do not vary irrespective of the volume of activity in a business
e.g.
salaries of permanent staff.
Variable costs - ✔✔A cost that varies with the level of output of an organisation.
Semi-variable costs - ✔✔A cost made up of both fixed and variable costs.
Budgets - ✔✔Budgets plan quantified in monetary terms and are important for time
phased income and expenditure management, to understand incoming and outgoing cash flow
over a specified period.
