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CIPS L4M2 Exam (page: 6)
CIPS Defining Business Needs
Updated on: 25-Dec-2025

Viewing Page 6 of 30
L4M2 PDF 238 Questions

Which type of specification is less time-consuming to develop?

  1. Outcome-based specification
  2. Design specification
  3. Conformance specification
  4. Technical drawings

Answer(s): A

Explanation:

There are two major types of specification: conformance and performance specifications. They have the following characteristics:



Since performance specification is often a list of outputs or outcomes, it usually takes less time to develop than conformance specification.


Reference:

CIPS study guide page 116-124



Due to the growth of consumer electronics market, semiconductor industry develops exponentially. However, the industry is dominated by a dozens of manufacturer. Chipset need to be built in factories with highly controlled environments. New chip factories cost billions of dollars and can take two years to build. Right now, factories are running at full capacity, which produce almost perfect yields, meaning basic chipset can be made for less than a dollar and more advanced versions for not much more.
What are the barriers to new entrants in the semiconductor industry?
1. Poor industry growth
2. High set-up costs
3. Economies of scale
4. Low switching costs

  1. 2 and 4 only
  2. 3 and 4 only
  3. 2 and 3 only
  4. 1 and 4 only

Answer(s): C

Explanation:

Barriers to entry is an economics and business term describing factors that can prevent or impede newcomers into a market or industry sector, and so limit competition. The most obvious barriers to entry are high start-up costs and regulatory hurdles which include the need for new companies to obtain licenses or regulatory clearance before operation. Also, industries heavily regulated by the government are usually the most difficult to penetrate. Other forms of barrier to entry that prevent new competitors from easily entering a business sector include special tax benefits to existing firms, patent protections, strong brand identity, customer loyalty, and high customer switching costs. In the scenario, the new factory for chipset manufacturing costs billions of dollars, which indicates high set-up costs. Also, the incumbent manufacturers have reached economies of scale, allowing them to produce the components at optimal price.
The above descriptions are compiled from recent reports on current chip shortage (2021).


Reference:

- Barriers to Entry Definition (investopedia.com)
- CIPS study guide page 96-97

LO 2, AC 2.2



A procurement manager consolidates the company expense on printing and office supplies into broader range of spend category. Other senior managers are concerned that it may increase company's spend. Is that concern justified?

  1. No, because the broader range of spend category can increase the value of the contract and the buyer may get volume discount
  2. Yes, because the consolidation may create a large contract that costs more than placing each purchase order
  3. No, because the consolidation will help the supplier to shorten deliver time.
  4. Yes, because the suppliers can't provide a broader range of products and they will fail to deliver

Answer(s): A

Explanation:

Printing and office supplies are often considered as low risk, low value items. Consolidation low value, low risk items into a broader range will dramatically increases the value of the contract and leverage of buying organisation in the negotiation.


Reference:

CIPS study guide page 8-9
LO 1, AC 1.1



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?

  1. $1,675,000
  2. $1,875,000
  3. $1,700,000
  4. $2,025,000

Answer(s): 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



When procuring an IT equipment, at which stage the buyer's expectations are translated into a technical specification?

  1. Installation
  2. Design
  3. In-service support
  4. Customer support

Answer(s): B

Explanation:

IT equipment is typically linked with through-life contracts. This type of contract not only deal with the specification and the price of a machinery, but also other stages such as design, manufacture, installation, in-service support, decommission and disposal. Among these stages, the design stage is when buyer's requirements are translated into technically correct specification.


Reference:

CIPS study guide page 131
LO 3, AC 3.2



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Tshepang 8/18/2023 4:41:00 AM

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