Question #1
An oil refinery plant imports much of its crude oil from overseas. A procurement manager in the refinery suggests that fixing the crude oil contract price for 36 months would be beneficial for the company.
Would this be a right thing to do?
- A . Yes, financial budgeting task would be a lot easier with fixed pricing arrangement
- B . No, fixed price should be only applied to contracts that last 60 months or longer
- C . No, the refinery would not be able to reap the benefits from falling commodity price and currency rates
- D . Yes, the supplier would bear the risk when the material price increased
Correct Answer: C
C
Explanation:
Fixed price contract is the contract in which the price is static throughout the contract period. A fixed-price contract may give certainty to budget and simplify contract management. However, it may lead to other problems since it requires bidders to estimate and bear the financial risks associated with price escalations. If the estimates are too high or events do not materialize, the buyer will pay a steep price that may affect the economy and efficiency of the contract. In the worst case, it may mean that the bid price is then above budget and may lead to a reduction in the requirements or rebidding. If the estimates are too low, it may appear as an abnormally low bid and disrupt contract execution.
On the other hand, price adjustment provisions include formulas designed to address problems, and can protect both the borrower and contractors from price fluctuations. Price adjustment formulas allow contractors to offer more realistic prices at the time of bidding. Despite concerns that they may lead to budget uncertainties, price adjustment formulas will estimate the actual cost implications that will be encountered. They use indexes that can be used for cost projection.
According to Asia Development Bank (ADB), any contract with a delivery or completion period beyond 18 months should contain an appropriate price adjustment clause.
In the scenario, the crude oil contract is planned to last 36 months. This period is pretty long with a fluctuating commodity. Therefore, the company should use price adjustment agreement.
Reference:
– CIPS study guide page 113-117
– GuidanceNote on Procurement: Price Adjustment (adb.org) LO 2, AC 2.2
C
Explanation:
Fixed price contract is the contract in which the price is static throughout the contract period. A fixed-price contract may give certainty to budget and simplify contract management. However, it may lead to other problems since it requires bidders to estimate and bear the financial risks associated with price escalations. If the estimates are too high or events do not materialize, the buyer will pay a steep price that may affect the economy and efficiency of the contract. In the worst case, it may mean that the bid price is then above budget and may lead to a reduction in the requirements or rebidding. If the estimates are too low, it may appear as an abnormally low bid and disrupt contract execution.
On the other hand, price adjustment provisions include formulas designed to address problems, and can protect both the borrower and contractors from price fluctuations. Price adjustment formulas allow contractors to offer more realistic prices at the time of bidding. Despite concerns that they may lead to budget uncertainties, price adjustment formulas will estimate the actual cost implications that will be encountered. They use indexes that can be used for cost projection.
According to Asia Development Bank (ADB), any contract with a delivery or completion period beyond 18 months should contain an appropriate price adjustment clause.
In the scenario, the crude oil contract is planned to last 36 months. This period is pretty long with a fluctuating commodity. Therefore, the company should use price adjustment agreement.
Reference:
– CIPS study guide page 113-117
– GuidanceNote on Procurement: Price Adjustment (adb.org) LO 2, AC 2.2
Question #2
Jane is planning for a forthcoming negotiation with a key supplier. She has learned what are important to the supplier and what are important to her company from previous contracts between them. In order to avoid negotiation deadlocks, she has set up several concession plans. But Jane has little experience in dealing with suppliers and doesn’t know when to trade these concessions.
When is the best time in a negotiation to trade concessions?
- A . In the testing phase
- B . In the proposing phase
- C . At bargaining stage
- D . At opening stage
Correct Answer: C
C
Explanation:
The question asks about the point in time when Jane should make concessions with the supplier. These concessions should be traded after preliminary stages such as opening, testing and proposing are over and proposals move from being tentative and general to being more definite and specific. This stage is called bargaining phase. The bargaining phase is the ‘meat’ of the negotiation meeting. LO 3, AC 3.1
C
Explanation:
The question asks about the point in time when Jane should make concessions with the supplier. These concessions should be traded after preliminary stages such as opening, testing and proposing are over and proposals move from being tentative and general to being more definite and specific. This stage is called bargaining phase. The bargaining phase is the ‘meat’ of the negotiation meeting. LO 3, AC 3.1
Question #3
Which of the following are examples of push techniques in commercial negotiations? Select TWO that apply.
- A . Threat of punishment, costs and damage
- B . Listening to, involving andsupporting others
- C . Argument based on information, logic and reason
- D . Working together to define the problem, the goals and the best solution
- E . Using language and imagery to ‘paint a picture others can see’
Correct Answer: A,C
A,C
Explanation:
There are two major persuasion methods: ‘push’ and ‘pull’.
Persuasion can be defined as encouraging someone to do something that you want them to do for you. Persuasion is reasoning with someone so that they will believe or do something they might not otherwise do. Persuasion can be considered as ‘pushing’ on TOP so that they can accept the change in attitude or behaviour as a result of your actions. Influence is the ability to affect the manner of thinking of another. Influence can be considered as pulling on TOP so that you achieve the same result, but TOP feels they have changed their attitude or behaviour as a result of their reflection and thinking, and not your direct actions.
There are 5 options in this question:
‘Threat of punishment, costs and damage’: The influencertries to ‘push’ the other party to act as he/she wants by using force. This method is effective but short-lived. The influencer also risks to developing reputation for being heavy handed and dictatorial.
‘Argument based on information, logic and reason’: The influencer uses logic and reasons to persuade the other party. This is also known as ‘Persuasive Reasoning’ (Push) ‘Using language and imagery to ‘paint a picture others can see’’: The influencer seeks to influence another by understanding the other’s emotions, and stimulating that party’s imagination to visualise the desired future goal of the influencer. This is also known as ‘visionary (pull)’
‘Working together to define the problem, the goals and the best solution’: In this technique, the person seeking to influence another involves the other party in the decision making process. This is known as ‘collaborative (pull)’
‘Listening to, involving and supporting others’: In this technique, the person seeking to influence another tries to discover the other party’s emotion and aims at mutual understanding. This is also a collaborative approach.
A,C
Explanation:
There are two major persuasion methods: ‘push’ and ‘pull’.
Persuasion can be defined as encouraging someone to do something that you want them to do for you. Persuasion is reasoning with someone so that they will believe or do something they might not otherwise do. Persuasion can be considered as ‘pushing’ on TOP so that they can accept the change in attitude or behaviour as a result of your actions. Influence is the ability to affect the manner of thinking of another. Influence can be considered as pulling on TOP so that you achieve the same result, but TOP feels they have changed their attitude or behaviour as a result of their reflection and thinking, and not your direct actions.
There are 5 options in this question:
‘Threat of punishment, costs and damage’: The influencertries to ‘push’ the other party to act as he/she wants by using force. This method is effective but short-lived. The influencer also risks to developing reputation for being heavy handed and dictatorial.
‘Argument based on information, logic and reason’: The influencer uses logic and reasons to persuade the other party. This is also known as ‘Persuasive Reasoning’ (Push) ‘Using language and imagery to ‘paint a picture others can see’’: The influencer seeks to influence another by understanding the other’s emotions, and stimulating that party’s imagination to visualise the desired future goal of the influencer. This is also known as ‘visionary (pull)’
‘Working together to define the problem, the goals and the best solution’: In this technique, the person seeking to influence another involves the other party in the decision making process. This is known as ‘collaborative (pull)’
‘Listening to, involving and supporting others’: In this technique, the person seeking to influence another tries to discover the other party’s emotion and aims at mutual understanding. This is also a collaborative approach.
Question #4
Which of the following is the internal factor that is taken intoprice of a product?
- A . Risk management
- B . Customer tastes
- C . Elasticity
- D . Exchange rate
Correct Answer: A
A
Explanation:
In order to answer this question, you should better consider each option:
‘Exchange rate’ is the value of one nation’s currency versus the currency of another nation or economic zone. This is a macroeconomic factor.
‘Elasticity’ refers to the degree to which individuals, consumers or producers change their demand or the amount supplied in response to price or income changes. This is a microeconomic factor Consumer tastes refer to the products and services that consumers consciously choose over others. Consumer tastes are so powerful that they can change how businesses
conduct their activity. Like elasticity, this is also a microeconomic factor.
Among 4 options, only risk management is the internal factor. Risk pricing is a strategy applied by many companies in the world. To learn how to price the risk, you can read an article from McKinsey: https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/how-to-price-risk-to-win-and-profit
This is a question that a student met in her actual exam. The knowledge section is unknown.
LO: Unknown, AC: Unknown
A
Explanation:
In order to answer this question, you should better consider each option:
‘Exchange rate’ is the value of one nation’s currency versus the currency of another nation or economic zone. This is a macroeconomic factor.
‘Elasticity’ refers to the degree to which individuals, consumers or producers change their demand or the amount supplied in response to price or income changes. This is a microeconomic factor Consumer tastes refer to the products and services that consumers consciously choose over others. Consumer tastes are so powerful that they can change how businesses
conduct their activity. Like elasticity, this is also a microeconomic factor.
Among 4 options, only risk management is the internal factor. Risk pricing is a strategy applied by many companies in the world. To learn how to price the risk, you can read an article from McKinsey: https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/how-to-price-risk-to-win-and-profit
This is a question that a student met in her actual exam. The knowledge section is unknown.
LO: Unknown, AC: Unknown
Question #5
A procurement professional is negotiating with a supplier on cleaning service. She realises that there are huge cost-saving opportunities if the supplier agrees to reduce its mark-up and unnecessary employee benefits. Supplier’s mark-up and employee benefits are examples of which of the following?
- A . Spend waterfall
- B . Spend cube
- C . Spend tree
- D . Addressable spend
Correct Answer: D
D
Explanation:
A key consideration when seeking to negotiate prices is to establish what proportion of the spend is addressable by procurement action such as negotiation. Addressability of spend is influenceable through negotiations or application of other saving effort or leverage with suppliers. LO 2, AC 2.1
D
Explanation:
A key consideration when seeking to negotiate prices is to establish what proportion of the spend is addressable by procurement action such as negotiation. Addressability of spend is influenceable through negotiations or application of other saving effort or leverage with suppliers. LO 2, AC 2.1
Question #6
Which of the following are signs indicating that TOP is using coercive power in commercial negotiation? Select TWO that apply.
- A . Demonstrating fairness and respect
- B . Withdrawal of benefits
- C . Use of guilt
- D . Technical expertise
- E . Positive references
Correct Answer: B,C
B,C
Explanation:
Coercive power comes from the belief that a person can punish other for non-compliance, and can be considered as the flip side of reward power. Coercive power rests in the individual’s ability to change other people’s behaviour through threat,intimidation, use of guilt, ability to embarrass or shame, or withdrawal of benefits,…
B,C
Explanation:
Coercive power comes from the belief that a person can punish other for non-compliance, and can be considered as the flip side of reward power. Coercive power rests in the individual’s ability to change other people’s behaviour through threat,intimidation, use of guilt, ability to embarrass or shame, or withdrawal of benefits,…
Question #7
Ma Bell was the sole provider of landline telephone service to most of the US in 1980s.
This is an example of…?
- A . Monopsony
- B . Monopoly
- C . Monopolistic competition
- D . Perfect competition
Correct Answer: B
B
Explanation:
A monopoly exists when only one company can supply an essential product or service in a givenregion because of significant barriers to entry for any competitor. The barriers can be legal, regulatory, economic, or geographic. Ma Bell case is an example of monopoly. The company was broken up in 1982.
A monopsony is a market structure in which a single buyer substantially controls the market as the major purchaser of goods and services offered by many would-be sellers.
Pure or perfect competition is a theoretical market structure in which the following criteria are met:
– All firms sell an identical product (the product is a "commodity" or "homogeneous").
– All firms are price takers (they cannot influence the market price of their product).
– Market share has no influence on prices.
– Buyers have complete or "perfect" information―in the past, presentand future―about the product being sold and the prices charged by each firm.
– Resources for such a labor are perfectly mobile.
– Firms can enter or exit the market without cost.
Monopolistic competition characterizes an industry in which many firms offerproducts or services that are similar, but not perfect substitutes. Barriers to entry and exit in a monopolistic competitive industry are low, and the decisions of any one firm do not directly affect those of its competitors. Monopolistic competition is closely related to the business strategy of brand differentiation
Reference: CIPS study guide page 105-110
LO 2, AC 2.2
B
Explanation:
A monopoly exists when only one company can supply an essential product or service in a givenregion because of significant barriers to entry for any competitor. The barriers can be legal, regulatory, economic, or geographic. Ma Bell case is an example of monopoly. The company was broken up in 1982.
A monopsony is a market structure in which a single buyer substantially controls the market as the major purchaser of goods and services offered by many would-be sellers.
Pure or perfect competition is a theoretical market structure in which the following criteria are met:
– All firms sell an identical product (the product is a "commodity" or "homogeneous").
– All firms are price takers (they cannot influence the market price of their product).
– Market share has no influence on prices.
– Buyers have complete or "perfect" information―in the past, presentand future―about the product being sold and the prices charged by each firm.
– Resources for such a labor are perfectly mobile.
– Firms can enter or exit the market without cost.
Monopolistic competition characterizes an industry in which many firms offerproducts or services that are similar, but not perfect substitutes. Barriers to entry and exit in a monopolistic competitive industry are low, and the decisions of any one firm do not directly affect those of its competitors. Monopolistic competition is closely related to the business strategy of brand differentiation
Reference: CIPS study guide page 105-110
LO 2, AC 2.2
Question #8
One difference between perfect competition and monopolistic competition is that…?
- A . In perfect competition, firms produce slightly differentiated products
- B . A perfectly competitive industry has fewer firms.
- C . Monopolistic competition has no barriers to entry
- D . Firms in monopolistic competition face a downward-sloping demand curve
Correct Answer: D
D
Explanation:
Monopolistic competition exists in market where there are many competing producers but they will try to use product differentiation. Although their products may be very similar, their ability to differentiate means that they can act as monopolies in short run, irrespective of the actions of their competitors.
In perfect competition, there are no barriers to entry to the market or exit from the market. In monopolistic competition, there tend to be fewer barriers to entry or exit in these markets than in oligopolistic markets, but it doesn’t mean that there are absolutely no barriers to entry in monopolistic competition.
In perfect competition, the demand curve is perfectly elastic, which means that it will be horizontal. Otherwise, in monopolistic competition market, the demand curve will have normal downward slope.
LO 2, AC 2.2
D
Explanation:
Monopolistic competition exists in market where there are many competing producers but they will try to use product differentiation. Although their products may be very similar, their ability to differentiate means that they can act as monopolies in short run, irrespective of the actions of their competitors.
In perfect competition, there are no barriers to entry to the market or exit from the market. In monopolistic competition, there tend to be fewer barriers to entry or exit in these markets than in oligopolistic markets, but it doesn’t mean that there are absolutely no barriers to entry in monopolistic competition.
In perfect competition, the demand curve is perfectly elastic, which means that it will be horizontal. Otherwise, in monopolistic competition market, the demand curve will have normal downward slope.
LO 2, AC 2.2
Question #9
Which of the following should be the final step of a negotiation process if both parties cannot reach an agreement?
- A . Reflecting on performance
- B . Tempting TOP to reopen the negotiation
- C . Asking TOP for another concession
- D . Celebrating publicly about the deal
Correct Answer: A
A
Explanation:
Reflecting on performance should become a natural final step in the negotiation process. ‘Celebrating publicly about the deal’: Public gloating, even in success or failure, if it gets back to the supplier via the press or social media, will likely damage the relationship ‘Tempting TOP to reopen the negotiation’: whether TOP agrees to reopen the negotiation, procurement should reflect on their achievement and what can be improved.
‘Asking TOP for another concession’: TOP can agree or rejectthis concession. Eventually, reflecting should be the final step. Procurement can learn a lot from reflection on performance.
LO 3, AC 3.4
A
Explanation:
Reflecting on performance should become a natural final step in the negotiation process. ‘Celebrating publicly about the deal’: Public gloating, even in success or failure, if it gets back to the supplier via the press or social media, will likely damage the relationship ‘Tempting TOP to reopen the negotiation’: whether TOP agrees to reopen the negotiation, procurement should reflect on their achievement and what can be improved.
‘Asking TOP for another concession’: TOP can agree or rejectthis concession. Eventually, reflecting should be the final step. Procurement can learn a lot from reflection on performance.
LO 3, AC 3.4
Question #10
Which of the following are most likely to help buyer become preferred customer in supplier’s perspective? Select TWO that apply.
- A . Onerous supplier terms and conditions
- B . Compliance with agreed repair lead time
- C . Shorter payment period
- D . Reduction in delivery errors
- E . Ensuring an increased number of repeat orders
Correct Answer: C,E
C,E
Explanation:
Becoming a preferred customer to supplier’s perspective can increase the purchaser’s leverage in negotiation.
Beside the size of buying organisation or its spend, the following may be sufficient to differentiate the buyer from other buying organisations:
– Simple procurement processes
– Simple contracting processes
– Clear and concise documentation
– Absence of onerous supplier terms and conditions (onerous supplier terms and conditions mean that obligations imposed on suppliers are greater than their gains)
– On-time payment: The reduction in hassle for both supplier and the buyer, if bills are paid on time, is significant. From the customer’s perspective it could also be the opener to agreeing preferential payment terms. A supplier may weigh up that payment on time at 60 days is worth taking, over the current 30-day terms that slip to 90 days and beyond.
– Transparent processes
– Ethical behavior
LO 1, AC 1.3
C,E
Explanation:
Becoming a preferred customer to supplier’s perspective can increase the purchaser’s leverage in negotiation.
Beside the size of buying organisation or its spend, the following may be sufficient to differentiate the buyer from other buying organisations:
– Simple procurement processes
– Simple contracting processes
– Clear and concise documentation
– Absence of onerous supplier terms and conditions (onerous supplier terms and conditions mean that obligations imposed on suppliers are greater than their gains)
– On-time payment: The reduction in hassle for both supplier and the buyer, if bills are paid on time, is significant. From the customer’s perspective it could also be the opener to agreeing preferential payment terms. A supplier may weigh up that payment on time at 60 days is worth taking, over the current 30-day terms that slip to 90 days and beyond.
– Transparent processes
– Ethical behavior
LO 1, AC 1.3
Question #11
When is the best time in procurement process in which procurement should get involved so that the cost-saving opportunities are the greatest?
- A . Market consult stage
- B . Post-contract stage
- C . Specification stage
- D . Post-tender stage
Correct Answer: C
C
Explanation:
The earlier procurement get involved in the procurement processes, the better. If procurement are involved in design at the specification stage they can feed in prices and costs to designer so they know the likely budget implication of choices made. Sending in a procurement team to negotiate at or close to the end ofthe procurement process effectively ties their hands and limits their negotiation leverage.
This is illustrated in the graph below:
C
Explanation:
The earlier procurement get involved in the procurement processes, the better. If procurement are involved in design at the specification stage they can feed in prices and costs to designer so they know the likely budget implication of choices made. Sending in a procurement team to negotiate at or close to the end ofthe procurement process effectively ties their hands and limits their negotiation leverage.
This is illustrated in the graph below:
Chart
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LO 2, AC 2.1
Question #12
Which of the following are most likely to be direct costs of a steel manufacturer? Select THREE that apply.
- A . Cleaning services
- B . Coal
- C . Seniormanagement salary
- D . Insurance for production lines
- E . Scrap metal
- F . Hourly production wages
Correct Answer: B,E,F
B,E,F
Explanation:
Direct costs are those costs of a product/service directly attributable/traceable to its production.
Examples of direct costs including the following:
Materials and services bought-in: In steel manufacturer, raw materials are iron ores, scrap metal, coals, etc
Labour or wages: money paid to staff for the work involved in producing the product. Other expenses: other charges incurred that can be specifically attributed to a particular product, batch or service
B,E,F
Explanation:
Direct costs are those costs of a product/service directly attributable/traceable to its production.
Examples of direct costs including the following:
Materials and services bought-in: In steel manufacturer, raw materials are iron ores, scrap metal, coals, etc
Labour or wages: money paid to staff for the work involved in producing the product. Other expenses: other charges incurred that can be specifically attributed to a particular product, batch or service
Question #13
Which of the following are macroeconomic factors that may have influence to the commercial negotiation? Select TWO that apply
- A . Equilibrium price
- B . Supply curve
- C . Unemployment rate
- D . Bargaining power of supplier
- E . Rising import tariffs
Correct Answer: C,E
C,E
Explanation:
There are many macro economic factors that could influence procurement in general and commercial negotiation in particular.
Below are six factors that are agreed to be fairly significant:
• Economy growth rate
• Inflation rates
• Interest rates
• Currency exchange rate
• Unemployment rate
• Protectionism
LO 2, AC 2.2
C,E
Explanation:
There are many macro economic factors that could influence procurement in general and commercial negotiation in particular.
Below are six factors that are agreed to be fairly significant:
• Economy growth rate
• Inflation rates
• Interest rates
• Currency exchange rate
• Unemployment rate
• Protectionism
LO 2, AC 2.2
Question #14
Which of the following will help to indicate personality preferences in four dimensions?
- A . Thomas-Kilmann Conflict Resolution model
- B . Intelligence quotient
- C . Mill’s RESPECT mnemonic
- D . Myers-Briggs Type Indicator
Correct Answer: D
D
Explanation:
The MyersCBriggs Type Indicator (MBTI) is an introspective self-report questionnaire indicating differing psychological preferences in how people perceive the world and make decisions. MBTI indicates personality preferences in four dimensions.
The ThomasCKilmann Conflict Mode Instrument (TKI) is a conflict style inventory, which is a tool developed to measure an individual’s response to conflict situations.
Mill’s RESPECT mnemonic is set out by Harry A. Mills which describes seven steps to agreements
An intelligence quotient (IQ) is a total score derived from a set of standardized tests designed to assess human intelligence.
D
Explanation:
The MyersCBriggs Type Indicator (MBTI) is an introspective self-report questionnaire indicating differing psychological preferences in how people perceive the world and make decisions. MBTI indicates personality preferences in four dimensions.
The ThomasCKilmann Conflict Mode Instrument (TKI) is a conflict style inventory, which is a tool developed to measure an individual’s response to conflict situations.
Mill’s RESPECT mnemonic is set out by Harry A. Mills which describes seven steps to agreements
An intelligence quotient (IQ) is a total score derived from a set of standardized tests designed to assess human intelligence.
Question #15
Which of the following will positively affect reputational strength of an organisation? Select TWO that apply.
- A . Adopting out-of-date technology
- B . Weak internal coordination
- C . Great gap between reputation and reality
- D . High ethical standards
- E . Strong customer focus
Correct Answer: D,E
D,E
Explanation:
In a globalisedcommercial world characterised by dynamic market and multiple companies competing for business, a positive corporate reputation can be an enormous asset.
Reputational strength in one organisation might be based on some or all of the following characteristics:
– Quality of products or services
– Low cost/high value for money
– High ethical standards
– Reliability
– Cutting-edge technology
– Strong customer focus
– Engineering excellence
LO 1, AC 1.4
D,E
Explanation:
In a globalisedcommercial world characterised by dynamic market and multiple companies competing for business, a positive corporate reputation can be an enormous asset.
Reputational strength in one organisation might be based on some or all of the following characteristics:
– Quality of products or services
– Low cost/high value for money
– High ethical standards
– Reliability
– Cutting-edge technology
– Strong customer focus
– Engineering excellence
LO 1, AC 1.4
Question #16
In a commercial negotiation, a procurement professional believe that the larger the order quantity from buyer, the lower the supplier’s average costs. Is this assumption true?
- A . No, because supplier’s average costs will rise as the buyer’s demand increases
- B . No, because the supplier may need to invest in new facility to meet buyer’s demand
- C . Yes, because larger order quantity will bring a considerable profit to supplier
- D . Yes, because larger order quantity will always enable the supplier to reach its economy of scale
Correct Answer: B
B
Explanation:
In some markets, suppliers experience peaks and troughs in demand and so buyers can increase their leverage through developing an understanding of how busy their vendor are at particular time during the year or business cycle and targetting atquieter period. Similarly, if a buyer can develop an understanding of supplier capacity and to what extent have they covered their fixed cost, they may be able to target suppliers when their average costs are likely to be lowest. Vendor’s average costs will be higher at low and high capacity utilisation.
B
Explanation:
In some markets, suppliers experience peaks and troughs in demand and so buyers can increase their leverage through developing an understanding of how busy their vendor are at particular time during the year or business cycle and targetting atquieter period. Similarly, if a buyer can develop an understanding of supplier capacity and to what extent have they covered their fixed cost, they may be able to target suppliers when their average costs are likely to be lowest. Vendor’s average costs will be higher at low and high capacity utilisation.
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Question #17
Which of the following are behaviours that builds trust between the buyer and the supplier in business relationship? Select TWO that apply.
- A . Conducting transparent procurement process
- B . Over-inflated contingency funds
- C . Allowing supplier to involve in early product development
- D . Commercial espionage
- E . Tendency to blame other party
Correct Answer: A,C
A,C
Explanation:
Trust-building behaviours are as following:
Joint-effort issue resolution
Open sharing of information
Open and honest discussion on root cause of failures
Joint planning focusing on value for money and risk sharing
Commercial transparency and co-proposition of cost reduction and service improvement programmes
Joint recognition and celebration of successes
A,C
Explanation:
Trust-building behaviours are as following:
Joint-effort issue resolution
Open sharing of information
Open and honest discussion on root cause of failures
Joint planning focusing on value for money and risk sharing
Commercial transparency and co-proposition of cost reduction and service improvement programmes
Joint recognition and celebration of successes
Question #18
Which of the following is the most appropriate approach to investors or shareholders who have high level of influence but low interest in the running of business?
- A . Engage and keep them satisfied
- B . Engage and consult with them regularly
- C . Keep these people inform through general communication media
- D . Manage them closely
Correct Answer: A
A
Explanation:
Investors or shareholders who have high level of influence but low interest belong to ‘Keep satisfied’ quadrant of Mendelow’s Stakeholder Matrix. You may read 2 versions from L4M1 and L4M5 here:
A
Explanation:
Investors or shareholders who have high level of influence but low interest belong to ‘Keep satisfied’ quadrant of Mendelow’s Stakeholder Matrix. You may read 2 versions from L4M1 and L4M5 here:
Table
Description automatically generated
LO 1, AC 1.1
Question #19
A negotiation is coming to the end. Both parties haven’t had any official commitments. Right before leaving the room, the buyer strongly disagrees with supplier’s set up prices and requests a discount. The supplier doesn’t reply but nods and smiles.
Can the buyer consider these actions as an acceptance?
- A . Yes, because smiling shows supplier’s readiness in signing the deal off
- B . No, because nodding and smiling are etiquette of polite rejection
- C . No, because nodding and smiling are not clear signs of neither acceptance nor rejection
- D . Yes, because negotiator should rely on non-verbal communications only
Correct Answer: C
C
Explanation:
Good negotiators are attuned to all stimuli and not just the verbal and written information exchanged. Tone of voice, body language, facial expressions and other clues from TOP are noticed, and with experience and knowledge, interpreted correctly. This interpretation may also involve knowledge of culture norms and values. A smile, a ‘yes’ and the type of hospitality received, (in the business context), can mean very different things in different international business cultures.
Trained negotiators will consider non-verbal communication (such as nodding and smiling)
and body language as one source of signal from TOP, but will rarely rely wholly on this as a guide to what TOP is thinking or feeling. Furthermore, international and regional cultural considerations must be included here to avoid errors in interpretation. Emotional intelligence also has an important role in forming a more holistic perspective of what TOP may be thinking or feeling.
C
Explanation:
Good negotiators are attuned to all stimuli and not just the verbal and written information exchanged. Tone of voice, body language, facial expressions and other clues from TOP are noticed, and with experience and knowledge, interpreted correctly. This interpretation may also involve knowledge of culture norms and values. A smile, a ‘yes’ and the type of hospitality received, (in the business context), can mean very different things in different international business cultures.
Trained negotiators will consider non-verbal communication (such as nodding and smiling)
and body language as one source of signal from TOP, but will rarely rely wholly on this as a guide to what TOP is thinking or feeling. Furthermore, international and regional cultural considerations must be included here to avoid errors in interpretation. Emotional intelligence also has an important role in forming a more holistic perspective of what TOP may be thinking or feeling.
Question #20
Which of the following are recognised techniques in contract negotiation? Select THREE that apply.
- A . Framing and reframing
- B . Ratification
- C . Pacing and leading
- D . Validation
- E . Role ethics
- F . Anchoring
Correct Answer: A,C,F
A,C,F
Explanation:
The question asks about negotiation techniques which are not present in the book.
In this question, there are only 3 recognised techniques:
– Framing and reframing: A frame is an assumption, or set of assumptions, that guides our attention and behavior. Reframing is the ability to identify and significantly change assumptions or perspectives. Framing has a significant impact on the effectiveness of negotiation outcomes and negotiator working relationships. You can read more on framing and reframing here.
– Anchoring: Anchoring bias is well-known cognitive bias in negotiation and in other
contexts. The anchoring bias describes the common tendency to give too much weight to the first number put forth in a discussion and then inadequately adjust from that starting point, or the “anchor.” We even fixate on anchors when we know they are irrelevant to the discussion at hand. You can read more on anchoring here.
– Pacing and leading: Pacing and leading is a two-step lever of persuasion. First C You “match your pace” to the person you want to influence in as many ways as possible. You can do this by mimicking the way the person talks, stands, their appearance, etc. You can also mimic less tangible aspects like the way they act, or their emotional state. Second C Once you’ve set your pace with someone, lead them to whatever decision or behavior you
want them to take! You can read more on pacing and leading here.
Reference: CIPS study guide page 163-165
LO 3, AC 3.2
A,C,F
Explanation:
The question asks about negotiation techniques which are not present in the book.
In this question, there are only 3 recognised techniques:
– Framing and reframing: A frame is an assumption, or set of assumptions, that guides our attention and behavior. Reframing is the ability to identify and significantly change assumptions or perspectives. Framing has a significant impact on the effectiveness of negotiation outcomes and negotiator working relationships. You can read more on framing and reframing here.
– Anchoring: Anchoring bias is well-known cognitive bias in negotiation and in other
contexts. The anchoring bias describes the common tendency to give too much weight to the first number put forth in a discussion and then inadequately adjust from that starting point, or the “anchor.” We even fixate on anchors when we know they are irrelevant to the discussion at hand. You can read more on anchoring here.
– Pacing and leading: Pacing and leading is a two-step lever of persuasion. First C You “match your pace” to the person you want to influence in as many ways as possible. You can do this by mimicking the way the person talks, stands, their appearance, etc. You can also mimic less tangible aspects like the way they act, or their emotional state. Second C Once you’ve set your pace with someone, lead them to whatever decision or behavior you
want them to take! You can read more on pacing and leading here.
Reference: CIPS study guide page 163-165
LO 3, AC 3.2
Question #21
Procurement team is required to improve leverage with their suppliers through spend consolidation.
To check whether there is any opportunity to consolidate spend, which of the following should be priority of procurement team?
- A . Spend analysis
- B . Value engineering
- C . Price analysis
- D . Total cost analysis
Correct Answer: A
A
Explanation:
In order to identify opportunities where you can increase your leverage with supplier, you need to understand your spend. Undertaking spend analysis of your accounts payable (AP) data is an essential first step here.
A
Explanation:
In order to identify opportunities where you can increase your leverage with supplier, you need to understand your spend. Undertaking spend analysis of your accounts payable (AP) data is an essential first step here.
Question #22
Which of the following is the area where two or more negotiating parties may find common ground?
- A . Zone of potential agreement
- B . Zone of proximal development
- C . Walk away area
- D . Best alternative to a negotiated agreement
Correct Answer: A
A
Explanation:
The zone of possible agreement (ZOPA) orbargaining range is considered an area where two or more negotiating parties may find common ground. It is this area where parties will often compromise and strike a deal. In order for negotiating parties to find a settlement or reach an agreement, they must work towards a common goal and seek an area that incorporates at least some of each party’s ideas.
The zone of proximal development refers to the difference between what a learner can do without help and what he or she can achieve with guidance and encouragement from a skilled partner.
There is no Walk away area. Walk away point is a position from which you cannot concede any more ground and must walk away/decline a deal.
Best alternative to a negotiated agreement is a fallback or backstop position if the negotiation fails to result in an agreement/no deal is agreed. LO 1, AC 1.2
A
Explanation:
The zone of possible agreement (ZOPA) orbargaining range is considered an area where two or more negotiating parties may find common ground. It is this area where parties will often compromise and strike a deal. In order for negotiating parties to find a settlement or reach an agreement, they must work towards a common goal and seek an area that incorporates at least some of each party’s ideas.
The zone of proximal development refers to the difference between what a learner can do without help and what he or she can achieve with guidance and encouragement from a skilled partner.
There is no Walk away area. Walk away point is a position from which you cannot concede any more ground and must walk away/decline a deal.
Best alternative to a negotiated agreement is a fallback or backstop position if the negotiation fails to result in an agreement/no deal is agreed. LO 1, AC 1.2
Question #23
What is the most likely outcome when two organisations with adversarial relationship negotiate with each other?
- A . Deadlocked
- B . Lose lose
- C . Win lose
- D . Win win
Correct Answer: C
C
Explanation:
An adversarial relationship in purchasing and supply arises when identical or equivalent good or services are available from competing suppliers and buyers/sellers are trying to gain an advantage over each other. Low levels of trust are characteristic of adversarial relationships. The outcome when two organisations with adversarial negotiate is most likely to be win-lose.
Reference:
Adversarial purchasing – Wikipedia
CIPS study guide page 32-35
C
Explanation:
An adversarial relationship in purchasing and supply arises when identical or equivalent good or services are available from competing suppliers and buyers/sellers are trying to gain an advantage over each other. Low levels of trust are characteristic of adversarial relationships. The outcome when two organisations with adversarial negotiate is most likely to be win-lose.
Reference:
Adversarial purchasing – Wikipedia
CIPS study guide page 32-35
Question #24
It may be more difficult to buy on a credit from supplier who locates in a country with a hyperinflation?
Is this assumption true?
- A . No, because supplier’s bank will take risks from currency fluctuation
- B . Yes, because thesupplier’s currency will lose its value overtime
- C . Yes, because buyer has more advantage if they make payment in their own currency
- D . No, because the higher the inflation rate, the stronger the supplier’s currency
Correct Answer: B
B
Explanation:
If the inflation rate is running high, then obtaining credit as a buyer is normally more difficult or expensive as money in the future will be worth less than money today.
B
Explanation:
If the inflation rate is running high, then obtaining credit as a buyer is normally more difficult or expensive as money in the future will be worth less than money today.
Question #25
Understanding supplier’s mark-up and margin can provide procurement professional a comprehensive insight into supplier’s net profits. Is this statement true?
- A . Yes, because supplier’s mark-up and margin are two most valuable sources of information to procurement
- B . No, because mark-up and margin inform little about supplier’s net profit
- C . No, because margin is enough to tell procurement about supplier’s profitability
- D . Yes, because these are two indicators of supplier’s future prospect
Correct Answer: B
B
Explanation:
Mark-up and margin allow supplier to make gross profit. Remember that every supplier operates under different cost structures and some are set up to be most profitableat a particular level of volume, so it is dangerous to assume all suppliers can survive on a lower margin if their volume increases. Intelligent buyers understand that mark-up and margin may define gross profits, but they tell you very little about a supplier’s net profits. LO 2, AC 2.1
B
Explanation:
Mark-up and margin allow supplier to make gross profit. Remember that every supplier operates under different cost structures and some are set up to be most profitableat a particular level of volume, so it is dangerous to assume all suppliers can survive on a lower margin if their volume increases. Intelligent buyers understand that mark-up and margin may define gross profits, but they tell you very little about a supplier’s net profits. LO 2, AC 2.1
Question #26
Before engaging in a negotiation with a supplier of rechargeable lights, procurement team tries to visualise the breakdown of supplier’s costs to calculate its break-even point. They estimate that total fixed expenses related to rechargeableelectric light are $270,000 per month and variable expenses involved in manufacturing this product are $126 per unit. The supplier charges its customer $180 per unit.
Within its current capacity, this supplier will make a profit at which of the following?
- A . More than 5,000 units are sold monthly
- B . Exactly 5,000 units are sold per month
- C . Exactly 1,500 units are sold monthly
- D . More than 1,500 units are sold monthly
Correct Answer: A
A
Explanation:
The analysis of cost into fixed and variable enables organisationsto determine their break-even point (BE) – the point where total revenue from sales and total cost exactly balance. All costs need to be covered by sale revenue in order for a company to make a profit. If you know your fixed costs and your variable costs then you can work out the minimum quantity of goods or services you need to sell to break even. Break even point is measured in volume and can be worked out graphically or via formulae: Price – Variable costs = Contribution
Break even point (volume) = Fixed expenses/Contribution margin per unit In this scenario, the break even point (Q) is: 270,000/(180-126) = 5,000
To make a profit, the supplier needs to sell more than 5,000units per month.
The BE point is thus an important determinant of flexibility of pricing for suppliers. Before BE is achieved there will be much greater reluctance to offer price concessions to customers than after BE is achieved.
LO 2, AC 2.1
A
Explanation:
The analysis of cost into fixed and variable enables organisationsto determine their break-even point (BE) – the point where total revenue from sales and total cost exactly balance. All costs need to be covered by sale revenue in order for a company to make a profit. If you know your fixed costs and your variable costs then you can work out the minimum quantity of goods or services you need to sell to break even. Break even point is measured in volume and can be worked out graphically or via formulae: Price – Variable costs = Contribution
Break even point (volume) = Fixed expenses/Contribution margin per unit In this scenario, the break even point (Q) is: 270,000/(180-126) = 5,000
To make a profit, the supplier needs to sell more than 5,000units per month.
The BE point is thus an important determinant of flexibility of pricing for suppliers. Before BE is achieved there will be much greater reluctance to offer price concessions to customers than after BE is achieved.
LO 2, AC 2.1
Question #27
Which of the following are typical characteristics of activity-based costing (ABC) method? Select TWO that apply.
- A . ABC provides the information required to take action and realise improvements
- B . Limited understanding of true costs incurred
- C . ABC has tended to over cost products on long runs and under cost those on short runs
- D . Costs are allocated based on volume
- E . Variable and all related overhead expenses are specifically assigned to a business activity
Correct Answer: A,E
A,E
Explanation:
Activity-based costing is an alternative approach to traditional absorption costing. The
characteristics of these two methods are illustrated in the graph below:
A,E
Explanation:
Activity-based costing is an alternative approach to traditional absorption costing. The
characteristics of these two methods are illustrated in the graph below:
Graphical user interface, text, chat or text message, website
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Question #28
Which of the following should be done when undertaking a reflection activity on negotiation? Select TWO that apply.
- A . Identify areas in your skill set where you need to improve
- B . Gloss over areas where you need to improve your skills or performance
- C . Be overly modest about your contribution to the outcomes of negotiation
- D . Use generalised or ambiguous language when describing your strengths and development areas
- E . Be honest and objective about your skills
Correct Answer: A,E
A,E
Explanation:
Giving positive group and individual feedback is easy, as is self-congratulation and, in many cases, it is hoped, this will be an accurate reflection on actual performance. When it comes to developmental or difficult feedback, it is only natural to want to move on and not reflect on the negative or developmental points, or why a negotiation did not achieve its objectives. But this is a mistake. The best learning opportunities come from reflection on what could be done better, and this can beachieved without blame, threat or condemnation. Everyone and every team will make mistakes and/or have areas where they could have improved. Clearly, if every reflection session concludes that an individual or team keeps making the same mistake, then there is a case to change roles or consider alternative
approaches.
About Dos and Don’ts of reflection, you can refer here: https://offices.depaul.edu/human-resources/employee-relations/Documents/Self%20Assesement.pdf
A,E
Explanation:
Giving positive group and individual feedback is easy, as is self-congratulation and, in many cases, it is hoped, this will be an accurate reflection on actual performance. When it comes to developmental or difficult feedback, it is only natural to want to move on and not reflect on the negative or developmental points, or why a negotiation did not achieve its objectives. But this is a mistake. The best learning opportunities come from reflection on what could be done better, and this can beachieved without blame, threat or condemnation. Everyone and every team will make mistakes and/or have areas where they could have improved. Clearly, if every reflection session concludes that an individual or team keeps making the same mistake, then there is a case to change roles or consider alternative
approaches.
About Dos and Don’ts of reflection, you can refer here: https://offices.depaul.edu/human-resources/employee-relations/Documents/Self%20Assesement.pdf
Question #29
Which of the following is the best description of direct cost?
- A . Direct costs are only variable raw materials that constitute a product
- B . Direct costs include raw materials, labour andoverheads
- C . Direct costs include only raw materials and labour of making the final product
- D . Direct costs include raw materials, labour and other expenses attributable to the final product
Correct Answer: D
D
Explanation:
Direct costs are those costs of a product/service directly attributable/traceable to its production, for example, the costs of labour and materials directly used to produce the goods/services which the organisation sells.
D
Explanation:
Direct costs are those costs of a product/service directly attributable/traceable to its production, for example, the costs of labour and materials directly used to produce the goods/services which the organisation sells.
Question #30
Which of the following is considered a weakness of a ‘dealer’ style negotiator?
- A . May shift position quickly
- B . May be too assertive
- C . Focuses on the facts and not the people
- D . Very precise
Correct Answer: A
A
Explanation:
A useful and simple shorthand for preferred negotiation styles is summarised by four simple descriptor: ‘warm’, ‘tough’, ‘logical’ and ‘dealer’, which can beapplied to describe individuals’ dominant preferred style in most circumstances.
Warm – a people person
Tough – a hard-nosed negotiator
Logic – a numbers person
Dealer – a trader who loves bargaining
Strengths, weaknesses of dealer style are described below:
A
Explanation:
A useful and simple shorthand for preferred negotiation styles is summarised by four simple descriptor: ‘warm’, ‘tough’, ‘logical’ and ‘dealer’, which can beapplied to describe individuals’ dominant preferred style in most circumstances.
Warm – a people person
Tough – a hard-nosed negotiator
Logic – a numbers person
Dealer – a trader who loves bargaining
Strengths, weaknesses of dealer style are described below:
Table
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LO 2, AC 2.4
Question #31
Which of the following statements about oligopoly is incorrect?
- A . A few firms play an important role in the sale of a product
- B . Oligopolistic firms recognize their interdependence
- C . One firm’s behaviour is a function of what its rivals do
- D . Prices in oligopoly are predicted to fluctuate widely and frequently
Correct Answer: D
D
Explanation:
An oligopoly exists when there are small number of producers that exert a significant influence in the market. Oligopoly’s main characteristics are discussed as follows: – Interdependence
The most important feature of oligopoly is the interdependence in decision¬-making of the few firms which comprise the industry. This is because when the number of competitors is few, any change in price, output, product etc. by a firm will have a direct effect on the fortune of its rivals, which will then retaliate in changing their own prices, output or products as the case may be.
– Importance of advertising and selling costs
A direct effect of interdependence of oligopolists is that the various firms have to employ variousaggressive and defensive marketing weapons to gain a greater share in the market or to prevent a fall in their market share. For this various firms have to incur a good deal of costs on advertising and on other measures of sales promotion. Therefore, there is a great importance of advertising and selling costs under conditions of market situation characterised by oligopoly – Group behaviour
Another important feature of oligopoly is that for the proper solution to the problem of determination of price and output under, it analysis of group behaviour is impor-tant. – Indeterminateness of demand curve facing an oligopolist
In this question, ‘Prices in oligopoly are predicted to fluctuate widely and frequently’ is an incorrect statement as producers in oligopoly often try to set up price. Prices fluctuate more frequently in perfect competition.
LO 2, AC 2.2
D
Explanation:
An oligopoly exists when there are small number of producers that exert a significant influence in the market. Oligopoly’s main characteristics are discussed as follows: – Interdependence
The most important feature of oligopoly is the interdependence in decision¬-making of the few firms which comprise the industry. This is because when the number of competitors is few, any change in price, output, product etc. by a firm will have a direct effect on the fortune of its rivals, which will then retaliate in changing their own prices, output or products as the case may be.
– Importance of advertising and selling costs
A direct effect of interdependence of oligopolists is that the various firms have to employ variousaggressive and defensive marketing weapons to gain a greater share in the market or to prevent a fall in their market share. For this various firms have to incur a good deal of costs on advertising and on other measures of sales promotion. Therefore, there is a great importance of advertising and selling costs under conditions of market situation characterised by oligopoly – Group behaviour
Another important feature of oligopoly is that for the proper solution to the problem of determination of price and output under, it analysis of group behaviour is impor-tant. – Indeterminateness of demand curve facing an oligopolist
In this question, ‘Prices in oligopoly are predicted to fluctuate widely and frequently’ is an incorrect statement as producers in oligopoly often try to set up price. Prices fluctuate more frequently in perfect competition.
LO 2, AC 2.2
Question #32
Professional buyer is planning for the next negotiation of a simple one-off contract. This negotiation is typified by which of the following? Select TWO that apply.
- A . Continuous dialogue with supplier
- B . Total cost of ownership is the most important criterion
- C . Vendor ratings will be used
- D . Arm’s-length approach
- E . Pricing is the most important criterion
Correct Answer: D,E
D,E
Explanation:
Professional buyers, when planning or engaging in negotiation with suppliers, should always be aware of where the intended and actual relationship with this supplier is positioned on the ‘spectrum’ or ‘continuum’ of commercial relationships. The relationship spectrum describes the range of commercial relationships between a buyer and supplier based on richness of communication, longevity and mutual dependence.
D,E
Explanation:
Professional buyers, when planning or engaging in negotiation with suppliers, should always be aware of where the intended and actual relationship with this supplier is positioned on the ‘spectrum’ or ‘continuum’ of commercial relationships. The relationship spectrum describes the range of commercial relationships between a buyer and supplier based on richness of communication, longevity and mutual dependence.
Timeline
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In the question, the contract is simple one-off (or spot buy), which means the relationship will likely to be more transactional. In such relationship, price is the most important criteria and buyer may adopt arm’s-length approach.
Question #33
During a negotiation, a procurement manager suggests that the two companies should split the difference which would benefit both the supplier and buyer .
Which persuasion method is she using?
- A . Compromise
- B . Threat
- C . Good cop/bad cop
- D . Logic
Correct Answer: A
A
Explanation:
In the scenario, the manager propose to ‘split the difference’, which means each party will accept some of their demands and concede some. This is known as ‘Compromise’. Reference: CIPS study guide page 163-165
A
Explanation:
In the scenario, the manager propose to ‘split the difference’, which means each party will accept some of their demands and concede some. This is known as ‘Compromise’. Reference: CIPS study guide page 163-165
Question #34
Which of the following is definition of elasticity of demand in microeconomics?
- A . The percentage change in the quantity demanded divided by the percentage change in income
- B . The percentage change in price of a good divided by the percentage change in the quantity demanded of that good.
- C . The percentage change in the quantity demanded of a good divided by the percentage change in the price of that good
- D . The percentage change in income divided by the percentage change in the quantity demanded
Correct Answer: C
C
Explanation:
Elasticity refers to the responsiveness of quantity demanded or quantity supplied to a change in price or another factor:
The price of a product can be described as being elastic if a small change in price leads to a big change in demand.
The price of a product can be described as being inelastic if a big change in price leads to a small change in demand.
The formulae of elasticity of demand is known as the following:
C
Explanation:
Elasticity refers to the responsiveness of quantity demanded or quantity supplied to a change in price or another factor:
The price of a product can be described as being elastic if a small change in price leads to a big change in demand.
The price of a product can be described as being inelastic if a big change in price leads to a small change in demand.
The formulae of elasticity of demand is known as the following:
Text
Description automatically generated with low confidence
Question #35
To buying organisation, savings can be achieved from different saving levers or tactics .
Which of the following are means that deliver savings through optimising specifications?
- A . Value engineering
- B . Part substitution
- C . Budgetlinkages
- D . Compare total cost of ownership
- E . Volume pooling
Correct Answer: A,B
A,B
Explanation:
If driving greater value and efficiency from your supply base is your end, you should remember that there are many ways to do this without seeking to negotiate lowerprices. Below are 7 types of saving levers:
A,B
Explanation:
If driving greater value and efficiency from your supply base is your end, you should remember that there are many ways to do this without seeking to negotiate lowerprices. Below are 7 types of saving levers:
Table
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Question #35
To buying organisation, savings can be achieved from different saving levers or tactics .
Which of the following are means that deliver savings through optimising specifications?
- A . Value engineering
- B . Part substitution
- C . Budgetlinkages
- D . Compare total cost of ownership
- E . Volume pooling
Correct Answer: A,B
A,B
Explanation:
If driving greater value and efficiency from your supply base is your end, you should remember that there are many ways to do this without seeking to negotiate lowerprices. Below are 7 types of saving levers:
A,B
Explanation:
If driving greater value and efficiency from your supply base is your end, you should remember that there are many ways to do this without seeking to negotiate lowerprices. Below are 7 types of saving levers:
Table
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Question #35
To buying organisation, savings can be achieved from different saving levers or tactics .
Which of the following are means that deliver savings through optimising specifications?
- A . Value engineering
- B . Part substitution
- C . Budgetlinkages
- D . Compare total cost of ownership
- E . Volume pooling
Correct Answer: A,B
A,B
Explanation:
If driving greater value and efficiency from your supply base is your end, you should remember that there are many ways to do this without seeking to negotiate lowerprices. Below are 7 types of saving levers:
A,B
Explanation:
If driving greater value and efficiency from your supply base is your end, you should remember that there are many ways to do this without seeking to negotiate lowerprices. Below are 7 types of saving levers:
Table
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Question #35
To buying organisation, savings can be achieved from different saving levers or tactics .
Which of the following are means that deliver savings through optimising specifications?
- A . Value engineering
- B . Part substitution
- C . Budgetlinkages
- D . Compare total cost of ownership
- E . Volume pooling
Correct Answer: A,B
A,B
Explanation:
If driving greater value and efficiency from your supply base is your end, you should remember that there are many ways to do this without seeking to negotiate lowerprices. Below are 7 types of saving levers:
A,B
Explanation:
If driving greater value and efficiency from your supply base is your end, you should remember that there are many ways to do this without seeking to negotiate lowerprices. Below are 7 types of saving levers:
Table
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Question #35
To buying organisation, savings can be achieved from different saving levers or tactics .
Which of the following are means that deliver savings through optimising specifications?
- A . Value engineering
- B . Part substitution
- C . Budgetlinkages
- D . Compare total cost of ownership
- E . Volume pooling
Correct Answer: A,B
A,B
Explanation:
If driving greater value and efficiency from your supply base is your end, you should remember that there are many ways to do this without seeking to negotiate lowerprices. Below are 7 types of saving levers:
A,B
Explanation:
If driving greater value and efficiency from your supply base is your end, you should remember that there are many ways to do this without seeking to negotiate lowerprices. Below are 7 types of saving levers:
Table
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Question #40
Influence
- A . 3 and 4 only
- B . 1 and 3 only
- C . 1 and 2 only
- D . 2 and 3 only
Correct Answer: C
C
Explanation:
Listening is a hugely important skill in the world of work. It’s a key part of effective communication […].
Regarding active listening, there is a model called ‘The SIER Hierarchy of Active Listening’. It details four key stages required for effective listening. As with all models associated with active listening, its purpose is to help the listener be a better, more effective listener who really hears what is being said, connects with the individual with whom they are communicating andbuilds effective relationships.
The model is a hierarchical model meaning that each stage builds on the stage before it. While the model is sometimes used for training in the sales arena, it is helpful in all walks of life. The stages of the model are: Sensing (including hearing and watching body language), Interpreting, Evaluating and Responding.
C
Explanation:
Listening is a hugely important skill in the world of work. It’s a key part of effective communication […].
Regarding active listening, there is a model called ‘The SIER Hierarchy of Active Listening’. It details four key stages required for effective listening. As with all models associated with active listening, its purpose is to help the listener be a better, more effective listener who really hears what is being said, connects with the individual with whom they are communicating andbuilds effective relationships.
The model is a hierarchical model meaning that each stage builds on the stage before it. While the model is sometimes used for training in the sales arena, it is helpful in all walks of life. The stages of the model are: Sensing (including hearing and watching body language), Interpreting, Evaluating and Responding.
Text
Description automatically generated with low confidence
Reference:
– CIPS study guide page 171-173
– The SIER Hierarchy of Active Listening: Become a Better Listener LO 3, AC 3.3
Question #41
Which of the following are most likely to beindirect costs of a garment manufacturer? Select THREE that apply.
- A . Packaging material
- B . Textile
- C . Zips pads
- D . Maintenance materials
- E . Utilities
- F . Depreciation of machinery
Correct Answer: D,E,F
D,E,F
Explanation:
Indirect costs are those cost that are not directly attributable to production.
Examples of indirect costs including the following:
Indirect labour: This covers every person in the factory who does not directly perform a production operation such as managers, supervisors, engineers, store personnel, clerks, maintenance staff, porters, canteen staff, security and cleaners etc.
Expenses: Included in this element is every fixed and variable expenses incurred in operating the factory, such as rent, rates, utilities, insurance, depreciation, maintenance, air conditioning and the various types of energy generation required by a clothing factory. Indirect materials: Also known as consumables, this element contains all the materials not directly connected to the makeup of a garment. Some of the typical items involved are office materials, spare parts, marker paper, maintenance materials, chalk & pins.
Direct costs are those costs of a product/service directly attributable/traceable to its production. Examples of direct costs including the following:
Direct Materials: Direct materials are all the materials and trimmings which go into the construction and finish of the garment. Typically, these materials would include cloth, lining, fusible, zips pads, tapes, labels, tickets, hangers and packaging materials.
Direct Labour: This cover the cost of all the labor directly involved in producing the garment and could include cutting, fusing, regular sewing, special machine operations, pressing, finishing, inspection and packing. Labor of all types and grade has a directoverhead which include holiday pay, sick pay, fringe benefits etc and the statutory payments made by the employer for each employee. This is usually expressed as a percentage of salary and when this percentage is added to the employee’s wage, it becomes the basis for calculating direct labor costs.
D,E,F
Explanation:
Indirect costs are those cost that are not directly attributable to production.
Examples of indirect costs including the following:
Indirect labour: This covers every person in the factory who does not directly perform a production operation such as managers, supervisors, engineers, store personnel, clerks, maintenance staff, porters, canteen staff, security and cleaners etc.
Expenses: Included in this element is every fixed and variable expenses incurred in operating the factory, such as rent, rates, utilities, insurance, depreciation, maintenance, air conditioning and the various types of energy generation required by a clothing factory. Indirect materials: Also known as consumables, this element contains all the materials not directly connected to the makeup of a garment. Some of the typical items involved are office materials, spare parts, marker paper, maintenance materials, chalk & pins.
Direct costs are those costs of a product/service directly attributable/traceable to its production. Examples of direct costs including the following:
Direct Materials: Direct materials are all the materials and trimmings which go into the construction and finish of the garment. Typically, these materials would include cloth, lining, fusible, zips pads, tapes, labels, tickets, hangers and packaging materials.
Direct Labour: This cover the cost of all the labor directly involved in producing the garment and could include cutting, fusing, regular sewing, special machine operations, pressing, finishing, inspection and packing. Labor of all types and grade has a directoverhead which include holiday pay, sick pay, fringe benefits etc and the statutory payments made by the employer for each employee. This is usually expressed as a percentage of salary and when this percentage is added to the employee’s wage, it becomes the basis for calculating direct labor costs.
Question #42
Which of the following are most likely to harm trust between buyer and supplier in a commercial relationship? Select TWO that apply.
- A . Avoidance of submitting important documentations
- B . Reduced response time during contract performance
- C . Resolving some conditions that would otherwise have them competing for resources
- D . Subjective assessment of performance
- E . Exploring a disagreement to learn from each other’s insights
Correct Answer: A,D
A,D
Explanation:
Trust-destroying behaviours:
– Rumours of partnership or relationship breaking down
– Emotion-based assessment of performance
– Avoiding accountability, passing the blame to others
– General mood C resentment, distrust,frustration, etc LO 1, AC 1.4
A,D
Explanation:
Trust-destroying behaviours:
– Rumours of partnership or relationship breaking down
– Emotion-based assessment of performance
– Avoiding accountability, passing the blame to others
– General mood C resentment, distrust,frustration, etc LO 1, AC 1.4
Question #43
When is the best time to adopt accommodating style according to Thomas-Kilmann conflict mode instrument?
- A . When both buyer and supplier want to find anintegrative solution as their concerns are too important to be compromised
- B . When buyer needs to gather more information to gain more advantages in later negotiations
- C . When preserving harmony and avoiding disruption with supplier are especially important
- D . When buyer and supplier have equal power but are strongly committed to mutually exclusive goals
Correct Answer: C
C
Explanation:
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
Accommodating is an unassertive andcooperative approach to resolving the conflict. Accommodating means conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point of view and generally giving and yielding to the other party’s point of view.
Accommodating is best used when:
C
Explanation:
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
Accommodating is an unassertive andcooperative approach to resolving the conflict. Accommodating means conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point of view and generally giving and yielding to the other party’s point of view.
Accommodating is best used when:
Question #43
When is the best time to adopt accommodating style according to Thomas-Kilmann conflict mode instrument?
- A . When both buyer and supplier want to find anintegrative solution as their concerns are too important to be compromised
- B . When buyer needs to gather more information to gain more advantages in later negotiations
- C . When preserving harmony and avoiding disruption with supplier are especially important
- D . When buyer and supplier have equal power but are strongly committed to mutually exclusive goals
Correct Answer: C
C
Explanation:
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
Accommodating is an unassertive andcooperative approach to resolving the conflict. Accommodating means conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point of view and generally giving and yielding to the other party’s point of view.
Accommodating is best used when:
C
Explanation:
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
Accommodating is an unassertive andcooperative approach to resolving the conflict. Accommodating means conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point of view and generally giving and yielding to the other party’s point of view.
Accommodating is best used when:
Question #43
When is the best time to adopt accommodating style according to Thomas-Kilmann conflict mode instrument?
- A . When both buyer and supplier want to find anintegrative solution as their concerns are too important to be compromised
- B . When buyer needs to gather more information to gain more advantages in later negotiations
- C . When preserving harmony and avoiding disruption with supplier are especially important
- D . When buyer and supplier have equal power but are strongly committed to mutually exclusive goals
Correct Answer: C
C
Explanation:
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
Accommodating is an unassertive andcooperative approach to resolving the conflict. Accommodating means conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point of view and generally giving and yielding to the other party’s point of view.
Accommodating is best used when:
C
Explanation:
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
Accommodating is an unassertive andcooperative approach to resolving the conflict. Accommodating means conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point of view and generally giving and yielding to the other party’s point of view.
Accommodating is best used when:
Question #43
When is the best time to adopt accommodating style according to Thomas-Kilmann conflict mode instrument?
- A . When both buyer and supplier want to find anintegrative solution as their concerns are too important to be compromised
- B . When buyer needs to gather more information to gain more advantages in later negotiations
- C . When preserving harmony and avoiding disruption with supplier are especially important
- D . When buyer and supplier have equal power but are strongly committed to mutually exclusive goals
Correct Answer: C
C
Explanation:
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
Accommodating is an unassertive andcooperative approach to resolving the conflict. Accommodating means conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point of view and generally giving and yielding to the other party’s point of view.
Accommodating is best used when:
C
Explanation:
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
Accommodating is an unassertive andcooperative approach to resolving the conflict. Accommodating means conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point of view and generally giving and yielding to the other party’s point of view.
Accommodating is best used when:
Question #43
When is the best time to adopt accommodating style according to Thomas-Kilmann conflict mode instrument?
- A . When both buyer and supplier want to find anintegrative solution as their concerns are too important to be compromised
- B . When buyer needs to gather more information to gain more advantages in later negotiations
- C . When preserving harmony and avoiding disruption with supplier are especially important
- D . When buyer and supplier have equal power but are strongly committed to mutually exclusive goals
Correct Answer: C
C
Explanation:
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
Accommodating is an unassertive andcooperative approach to resolving the conflict. Accommodating means conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point of view and generally giving and yielding to the other party’s point of view.
Accommodating is best used when:
C
Explanation:
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
Accommodating is an unassertive andcooperative approach to resolving the conflict. Accommodating means conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point of view and generally giving and yielding to the other party’s point of view.
Accommodating is best used when:
Question #43
When is the best time to adopt accommodating style according to Thomas-Kilmann conflict mode instrument?
- A . When both buyer and supplier want to find anintegrative solution as their concerns are too important to be compromised
- B . When buyer needs to gather more information to gain more advantages in later negotiations
- C . When preserving harmony and avoiding disruption with supplier are especially important
- D . When buyer and supplier have equal power but are strongly committed to mutually exclusive goals
Correct Answer: C
C
Explanation:
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
Accommodating is an unassertive andcooperative approach to resolving the conflict. Accommodating means conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point of view and generally giving and yielding to the other party’s point of view.
Accommodating is best used when:
C
Explanation:
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
Accommodating is an unassertive andcooperative approach to resolving the conflict. Accommodating means conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point of view and generally giving and yielding to the other party’s point of view.
Accommodating is best used when:
Question #43
When is the best time to adopt accommodating style according to Thomas-Kilmann conflict mode instrument?
- A . When both buyer and supplier want to find anintegrative solution as their concerns are too important to be compromised
- B . When buyer needs to gather more information to gain more advantages in later negotiations
- C . When preserving harmony and avoiding disruption with supplier are especially important
- D . When buyer and supplier have equal power but are strongly committed to mutually exclusive goals
Correct Answer: C
C
Explanation:
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
Accommodating is an unassertive andcooperative approach to resolving the conflict. Accommodating means conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point of view and generally giving and yielding to the other party’s point of view.
Accommodating is best used when:
C
Explanation:
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
Accommodating is an unassertive andcooperative approach to resolving the conflict. Accommodating means conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point of view and generally giving and yielding to the other party’s point of view.
Accommodating is best used when:
Question #50
Which of the following is categorised as fixed cost?
- A . Additional pallet hires due to higher demand in year-end season
- B . Land rental paid in advance
- C . Governments taxes
- D . Raw materials for next year production
Correct Answer: B
B
Explanation:
Anorganisation’s expense can be categorised into three groups:
Fixed Costs C costs that do not change with output.
Variable Costs C costs that vary in direct proportion to output.
Semi-variable costs C costs that are a combination of the above, with both a fixed and
variable element.
Among the four options:
"Land rental paid in advance": This is fixed cost. The rental won’t increase when the production increases.
"Additional pallet hires due to higher demand in year-end season": This can be identified as semi-variable cost (or step cost).
"Governments taxes": The taxes are often levied by a percentage of income or revenue. Therefore, it is variable
"Raw materials for next year production": This is obviously variable cost.
Reference:
CIPS study guide page 79-84
Study tips: Fixed variable and semi-variable costs – AAT Comment
B
Explanation:
Anorganisation’s expense can be categorised into three groups:
Fixed Costs C costs that do not change with output.
Variable Costs C costs that vary in direct proportion to output.
Semi-variable costs C costs that are a combination of the above, with both a fixed and
variable element.
Among the four options:
"Land rental paid in advance": This is fixed cost. The rental won’t increase when the production increases.
"Additional pallet hires due to higher demand in year-end season": This can be identified as semi-variable cost (or step cost).
"Governments taxes": The taxes are often levied by a percentage of income or revenue. Therefore, it is variable
"Raw materials for next year production": This is obviously variable cost.
Reference:
CIPS study guide page 79-84
Study tips: Fixed variable and semi-variable costs – AAT Comment
Question #51
A procurement professional is preparing for anegotiation with supplier. She is setting targets for price which her company is seeking to achieve .
Which of the following acronyms can help her identify limits before engaging in the negotiation?
- A . MIL
- B . RAQSCI
- C . TIMWOOD
- D . PPCA
Correct Answer: A
A
Explanation:
MIL criteria indicate 3 limits that negotiator should establish:
M – Must achieve: minimum target/maximum you can concede on this point; the mandatory
requirement or fall back position
I – Intend to achieve: realistic target you are aiming for on this point
L C Like to achieve: stretch target to achieve on this point.
PPCA is purchase cost analysis
TIMWOOD indicates 7 types of waste in Lean principles
The RAQSCI model is a mnemonic summary of a business model used to define and structure business requirements
A
Explanation:
MIL criteria indicate 3 limits that negotiator should establish:
M – Must achieve: minimum target/maximum you can concede on this point; the mandatory
requirement or fall back position
I – Intend to achieve: realistic target you are aiming for on this point
L C Like to achieve: stretch target to achieve on this point.
PPCA is purchase cost analysis
TIMWOOD indicates 7 types of waste in Lean principles
The RAQSCI model is a mnemonic summary of a business model used to define and structure business requirements
Question #52
After studying Thomas-Kilmann conflict resolution model and considering different approaches carefully, the procurement team of XYZ Ltd. decides to adopt an avoiding approach to the upcoming negotiation with one of their suppliers.
Which of the following will be the objective of XYZ procurement team in this negotiation?
- A . Yielding the supplier’s point of view
- B . Postponing the issue
- C . Seeking a quick middle-ground position
- D . Confronting and trying to find a creative solution immediately
Correct Answer: B
B
Explanation:
Avoiding is unassertive and uncooperative. When avoiding, an individual does not immediately pursue his or her own concerns or those of the other person. He or she does not address the conflict. Avoiding might take the form of diplomatically sidestepping an issue, postponing an issue until a better time, or simply withdrawing from a threatening situation.
LO 1, AC 1.1
B
Explanation:
Avoiding is unassertive and uncooperative. When avoiding, an individual does not immediately pursue his or her own concerns or those of the other person. He or she does not address the conflict. Avoiding might take the form of diplomatically sidestepping an issue, postponing an issue until a better time, or simply withdrawing from a threatening situation.
LO 1, AC 1.1
Question #53
Which of the following are most likely to be abilities of a person with high emotional intelligence? Select TWO that apply.
- A . Complex idea comprehension
- B . Controlling one’s own emotions
- C . Perceiving how others feel
- D . Reasoning and problem solving
Abstract thinking
Correct Answer: B,C
B,C
Explanation:
Emotional Quotient is the set of skills that enables us to make our way in a complex world – the personal, social and survival aspects of overall intelligence, the elusive common sense and sensitivity that areessential to effective daily functioning. It has to do with the ability to read the political and social environment, and landscape them; to intuitively grasp what others want and need; what strengths and weaknesses are; to remain unruffled by stress; and to be engaging. The kind of person others want to be around and follow.
EQ seeks to measure emotional intelligence and is centred on abilities such as the following:
– Identifying emotions
– Evaluating how others feel
– Controlling one’s own emotions
– Perceiving how others feel
– Using emotions to facilitate social communication
– Relating to others
On the other hand, cognitive ability is defined as a general mental capability involving reasoning, problem solving, planning, abstract thinking, complex ideacomprehension, and learning from experience (Gottfredson, 1997). LO 3, AC 3.3
B,C
Explanation:
Emotional Quotient is the set of skills that enables us to make our way in a complex world – the personal, social and survival aspects of overall intelligence, the elusive common sense and sensitivity that areessential to effective daily functioning. It has to do with the ability to read the political and social environment, and landscape them; to intuitively grasp what others want and need; what strengths and weaknesses are; to remain unruffled by stress; and to be engaging. The kind of person others want to be around and follow.
EQ seeks to measure emotional intelligence and is centred on abilities such as the following:
– Identifying emotions
– Evaluating how others feel
– Controlling one’s own emotions
– Perceiving how others feel
– Using emotions to facilitate social communication
– Relating to others
On the other hand, cognitive ability is defined as a general mental capability involving reasoning, problem solving, planning, abstract thinking, complex ideacomprehension, and learning from experience (Gottfredson, 1997). LO 3, AC 3.3
Question #54
A supplier’s mark-up on all products is 25%. Supplier’s profit margin is…?
- A . 20%
- B . 30%
- C . 75%
- D . 15%
Correct Answer: A
A
Explanation:
A
Explanation:
Table
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Text
Description automatically generated with low confidence LO 2, AC 2.1
Question #54
A supplier’s mark-up on all products is 25%. Supplier’s profit margin is…?
- A . 20%
- B . 30%
- C . 75%
- D . 15%
Correct Answer: A
A
Explanation:
A
Explanation:
Table
Description automatically generated with medium confidence
Text
Description automatically generated with low confidence LO 2, AC 2.1
Question #54
A supplier’s mark-up on all products is 25%. Supplier’s profit margin is…?
- A . 20%
- B . 30%
- C . 75%
- D . 15%
Correct Answer: A
A
Explanation:
A
Explanation:
Table
Description automatically generated with medium confidence
Text
Description automatically generated with low confidence LO 2, AC 2.1
Question #54
A supplier’s mark-up on all products is 25%. Supplier’s profit margin is…?
- A . 20%
- B . 30%
- C . 75%
- D . 15%
Correct Answer: A
A
Explanation:
A
Explanation:
Table
Description automatically generated with medium confidence
Text
Description automatically generated with low confidence LO 2, AC 2.1
Question #54
A supplier’s mark-up on all products is 25%. Supplier’s profit margin is…?
- A . 20%
- B . 30%
- C . 75%
- D . 15%
Correct Answer: A
A
Explanation:
A
Explanation:
Table
Description automatically generated with medium confidence
Text
Description automatically generated with low confidence LO 2, AC 2.1
Question #59
Broken record
- A . 1 and 3only
- B . 2 and 4 only
- C . 3 and 4 only
- D . 1 and 2 only
Correct Answer: C
C
Explanation:
In the scenario, the buyer states that permission from senior management is required to shorten payment period and she only has authority to sign off a deal in which the payment period lasts at least 30 days. The buyer is using lack of authority. The buyer also repeats the matter again throughout the negotiation. This is a common tactic known as broken record.
C
Explanation:
In the scenario, the buyer states that permission from senior management is required to shorten payment period and she only has authority to sign off a deal in which the payment period lasts at least 30 days. The buyer is using lack of authority. The buyer also repeats the matter again throughout the negotiation. This is a common tactic known as broken record.
Question #60
A procurement professional is sourcing low value items. He conducts market analysis and realise that these items can be provided by many suppliers and switching cost between suppliersis relatively low. He also assume that the relationship between buyer and supplier will be transactional rather than long-term.
According to Thomas-Kilmann conflict model instrument, which of the following is the most appropriate style that the procurement professional should adopt when negotiating with these suppliers?
- A . Avoiding
- B . Compromising
- C . Competing
- D . Collaborating
Correct Answer: C
C
Explanation:
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
C
Explanation:
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
Graphical user interface, text, application, email
Description automatically generated
In this scenario, the buyer’s bargaining power is stronger than suppliers’, and the relationship is transactional. Therefore, to get the most preferable outcome, the procurement professional can take an assertive approach, while he doesn’t need to co-operate closely with these suppliers. Competing will be the most appropriate approach to negotiation in this scenario so that the buying organisation can get a better deal.
Question #61
Which of the following method should be used in negotiation if both parties want to communicate verbally and non-verbally without having to meet face-to-face?
- A . Web conferencing
- B . Telephone
- C . Teleconferencing
- D . In-person meeting
Correct Answer: A
A
Explanation:
Using webcams in a web conference means you are able to communicate both verbally and non verbally.
Over the phone, you cannot see TOP, the only cue/signal you have regarding their mood, interest and attitude is person’s voice, intonation andany delay.
A teleconference is a telephone meeting among two or more participants involving technology more sophisticated than a simple two-way phone connection.
In-person meeting requires you team and TOP to be in the same place at the same time. LO 2, AC 2.4
A
Explanation:
Using webcams in a web conference means you are able to communicate both verbally and non verbally.
Over the phone, you cannot see TOP, the only cue/signal you have regarding their mood, interest and attitude is person’s voice, intonation andany delay.
A teleconference is a telephone meeting among two or more participants involving technology more sophisticated than a simple two-way phone connection.
In-person meeting requires you team and TOP to be in the same place at the same time. LO 2, AC 2.4
Question #62
Which of the following is the process enabling the buyer to share with the supplier their purposes and needs to focus on some specific areas such as quality, cost, social and environmental standards, etc in the supplier’s bids?
- A . Supplier selection
- B . Supply positioning
- C . Supplier appraisal
- D . Supplier conditioning
Correct Answer: D
D
Explanation:
Supplier conditioning is the process of influencing a supplier or suppliers to behave in a certain way, or to accept certain circumstances. Within a negotiation, the buyer needs to make sure that the supplier has a number of messages in mind, about the outcomes that the buyer needs to achieve and about the shared sense of purpose that buying organisation has in achieving these outcomes.
Supplier appraisal is a process of evaluating a supplier’s ability to carry out a contract in term of quality, delivery, price and other contributing factors.
Supplier positioning is the process of classifying spend with a supplier in terms of the profit potential and supply risk and assists in prioritising categories of spend and developing the rightstrategy.
Supplier selection is the process of selecting a supplier to acquire the necessary materials to support the outputs of organisations. Selection of the best and/or the most suitable suppliers is based on assessing supplier capabilities (Shih et al., 2004).
D
Explanation:
Supplier conditioning is the process of influencing a supplier or suppliers to behave in a certain way, or to accept certain circumstances. Within a negotiation, the buyer needs to make sure that the supplier has a number of messages in mind, about the outcomes that the buyer needs to achieve and about the shared sense of purpose that buying organisation has in achieving these outcomes.
Supplier appraisal is a process of evaluating a supplier’s ability to carry out a contract in term of quality, delivery, price and other contributing factors.
Supplier positioning is the process of classifying spend with a supplier in terms of the profit potential and supply risk and assists in prioritising categories of spend and developing the rightstrategy.
Supplier selection is the process of selecting a supplier to acquire the necessary materials to support the outputs of organisations. Selection of the best and/or the most suitable suppliers is based on assessing supplier capabilities (Shih et al., 2004).
Question #63
Which of the following is NOT a barrier to entry in amonopolized market?
- A . The costs of production make a single producer more efficient than a large number of producers
- B . A single firm is very large
- C . The government gives a single firm the exclusive right to produce some good
- D . A key resource is owned by a single firm
Correct Answer: B
B
Explanation:
Monopolies exist in many markets in real life for very different reasons:
Ownership of a Key Resource: When one company exerts sole control over a resource that is necessary for the production of a specific product, the market may become a monopoly. For example, the only medication deemed acceptable to treat a disease comes from a particular ingredient X, and knowledge of this ingredient X is owned by a single family owned company. The company can, therefore, be saidto have a monopoly over ingredient X that is needed to cure the disease because it is the only company that can produce a product deemed acceptable.
Government Franchise: In certain instances, a monopoly may be explicitly created by the government if it grants a single company, whether private or government-owned, the right to conduct business in a particular market. For example, when a national railways transportation service is created by the government, in most cases they are granted a monopoly on the operation of passenger trains in the country. As a result, other firms are only able to offer passenger train services with the cooperation and/or permission of the government-owned provider.
Intellectual Property Protection: Extending intellectual property protection to a company in the form of patents and copyrights is yet another way in which monopolies are created. When a government does this, it is in fact giving a single company an exclusive right to provide a particular product / service to the market. Patents and copyrights work in providing owners of intellectual property with the right to act as an exclusive provider of a new product for a specific length of time. This creates a temporary monopoly in the market with regards to new products and services.
Natural Monopoly: A market may also become a monopoly simply because it may be more cost-effective for one company to serve the whole market than to have several smaller firms in competition with one another. A company with virtually unlimited economies of scale is referred to as a natural monopoly. Such firms become monopolies due to their position and size, which makes it impossible for new entrants in the market to compete price-wise. Natural monopolies are common in industries with high fixed costs and low marginal costs of operation such as providers of television, telephone, and internet services.
In this question, ‘A single firm is very large’ is not enough to tell whether this market is monopolistic.
B
Explanation:
Monopolies exist in many markets in real life for very different reasons:
Ownership of a Key Resource: When one company exerts sole control over a resource that is necessary for the production of a specific product, the market may become a monopoly. For example, the only medication deemed acceptable to treat a disease comes from a particular ingredient X, and knowledge of this ingredient X is owned by a single family owned company. The company can, therefore, be saidto have a monopoly over ingredient X that is needed to cure the disease because it is the only company that can produce a product deemed acceptable.
Government Franchise: In certain instances, a monopoly may be explicitly created by the government if it grants a single company, whether private or government-owned, the right to conduct business in a particular market. For example, when a national railways transportation service is created by the government, in most cases they are granted a monopoly on the operation of passenger trains in the country. As a result, other firms are only able to offer passenger train services with the cooperation and/or permission of the government-owned provider.
Intellectual Property Protection: Extending intellectual property protection to a company in the form of patents and copyrights is yet another way in which monopolies are created. When a government does this, it is in fact giving a single company an exclusive right to provide a particular product / service to the market. Patents and copyrights work in providing owners of intellectual property with the right to act as an exclusive provider of a new product for a specific length of time. This creates a temporary monopoly in the market with regards to new products and services.
Natural Monopoly: A market may also become a monopoly simply because it may be more cost-effective for one company to serve the whole market than to have several smaller firms in competition with one another. A company with virtually unlimited economies of scale is referred to as a natural monopoly. Such firms become monopolies due to their position and size, which makes it impossible for new entrants in the market to compete price-wise. Natural monopolies are common in industries with high fixed costs and low marginal costs of operation such as providers of television, telephone, and internet services.
In this question, ‘A single firm is very large’ is not enough to tell whether this market is monopolistic.
Question #64
Which of the following are the most typical characteristics of integrative approach to
negotiation? Select TWO that apply.
- A . Positional-based
- B . Claiming value
- C . Interest-based
- D . Short-term wins
- E . Creating more value
Correct Answer: C,E
C,E
Explanation:
Integrative approach to negotiation used when the interested parties are attempting to create more of something of value to share, also known as collaborative approach or win-win. Integrative, interest-based negotiation can facilitate constructive, positive relationship and establishes contracts between parties on a foundation of goodwill. In integrative bargaining, both parties seek to ‘expand the pie’ by creating more value for both the buyer and the seller. Integrative negotiation ‘shares thepie’ and is interest rather than positional based.
In distributive bargaining, the focus is on claiming value and getting as much of the pie as parties can.
C,E
Explanation:
Integrative approach to negotiation used when the interested parties are attempting to create more of something of value to share, also known as collaborative approach or win-win. Integrative, interest-based negotiation can facilitate constructive, positive relationship and establishes contracts between parties on a foundation of goodwill. In integrative bargaining, both parties seek to ‘expand the pie’ by creating more value for both the buyer and the seller. Integrative negotiation ‘shares thepie’ and is interest rather than positional based.
In distributive bargaining, the focus is on claiming value and getting as much of the pie as parties can.
Table
Description automatically generated
LO 1, AC 1.2
Question #65
Premium pricing strategies used by suppliers are characterised by which of the following? Select TWO that apply.
- A . Products are charged at a price based on supplier’s reputation
- B . This strategy is often used when supplier attempts to enter new market
- C . Price is based on cost structures
- D . Typically found in the early part of the product life cycle
- E . Premium price is determined by variable costs only
Correct Answer: A,D
A,D
Explanation:
There are several pricing strategies used by suppliers:
Cost-plus pricing C Total variable + Fixed cost + profit
Premium pricing C based on branding. Supplier determines to charge a very high price, notconnected with cost structures, usually based on its reputation and/or the perception that the product/service is of
a superior quality. This strategy typically found in the early part of the product life cycle/when demand exceeds supply.
Penetration pricing – Supplier attempts to enter a new market or extend its share in an established one. It is characterised by price reductions to increase volume, followed by steady price increases; may
even be loss leading at start (no profit made) Marginal cost pricing C covers only variable cost
Market pricing C suppliers prices in line with what the market is willing to pay
A,D
Explanation:
There are several pricing strategies used by suppliers:
Cost-plus pricing C Total variable + Fixed cost + profit
Premium pricing C based on branding. Supplier determines to charge a very high price, notconnected with cost structures, usually based on its reputation and/or the perception that the product/service is of
a superior quality. This strategy typically found in the early part of the product life cycle/when demand exceeds supply.
Penetration pricing – Supplier attempts to enter a new market or extend its share in an established one. It is characterised by price reductions to increase volume, followed by steady price increases; may
even be loss leading at start (no profit made) Marginal cost pricing C covers only variable cost
Market pricing C suppliers prices in line with what the market is willing to pay
Question #66
Which of the following are common forms of collaborating approach in Thomas-Kilmann conflict resolution model? Select THREE that apply.
- A . Exploring a disagreement to learn from each other’s insights
- B . Yielding to another’s point of view
- C . Resolving some conditions that would otherwise have them competing for resources
- D . Trying to win at any cost
- E . Trying to find a creative solution to current problem
- F . Seeking a quick middle-ground position
Correct Answer: A,C,E
A,C,E
Explanation:
Collaborating is both assertive and cooperative. When collaborating, an individual attempts
to work with the other person to find a solution that fully satisfies the concerns of both. It involves digging into an issue to identify the underlying concerns of the two individuals and to find an alternative that meets both sets of concerns. Collaborating between two persons might take the form of exploring a disagreement to learn from each other’s insights, resolving some condition that would otherwise have them competing for resources, or confronting and trying to find a creative solution to an interpersonal problem.
A,C,E
Explanation:
Collaborating is both assertive and cooperative. When collaborating, an individual attempts
to work with the other person to find a solution that fully satisfies the concerns of both. It involves digging into an issue to identify the underlying concerns of the two individuals and to find an alternative that meets both sets of concerns. Collaborating between two persons might take the form of exploring a disagreement to learn from each other’s insights, resolving some condition that would otherwise have them competing for resources, or confronting and trying to find a creative solution to an interpersonal problem.
Question #67
At the first stage of CIPSP rocurement and Supply Cycle (Understand need), which of the following is the most important duty of procurement professional?
- A . Demand management
- B . Evaluating the interests from suppliers
- C . Undertaking ‘reverse marketing’
- D . Deciding whether RFQ or ITT should be used
Correct Answer: A
A
Explanation:
At the first stage of CIPS Procurement and Supply Cycle (Understand need and develop a high-level specification), procurement professional mainly negotiate with internal stakeholders. They have a duty toproportionately and constructively challenge specification if there’s genuine doubt over the need or how the need is expressed. This is called demand management. Their first duty is to the organisation’s treasury, not to functional managers. Demand management including: negotiation/challenge between procurement and internal stakeholders over the need/requirement/specification. Remember that in any process or product, the greatest opportunity for cost reduction is at the design stage.
A
Explanation:
At the first stage of CIPS Procurement and Supply Cycle (Understand need and develop a high-level specification), procurement professional mainly negotiate with internal stakeholders. They have a duty toproportionately and constructively challenge specification if there’s genuine doubt over the need or how the need is expressed. This is called demand management. Their first duty is to the organisation’s treasury, not to functional managers. Demand management including: negotiation/challenge between procurement and internal stakeholders over the need/requirement/specification. Remember that in any process or product, the greatest opportunity for cost reduction is at the design stage.
Question #68
At which stage in a negotiation would questions be asked to obtain missing information?
- A . The bargaining stage
- B . The proposing stage
- C . The opening stage
- D . The testing stage
Correct Answer: D
D
Explanation:
There are 5 key phases of negotiation:
The opening phase: confirm understanding and get the issue on the table
The testing phase: check assumption and confirm understanding The proposing phase: asking ‘if’
The bargaining phase: using tradeables
The agreement and closing phase
The testing could take the form of questions following a presentation by either side or questions on a tender or proposal document received by the buyer from the potential supplier. The testing phase is necessary to confirm that your approach and objectives are appropriate for the negotiation situation you now find yourself in. Careful listening, observation and interpretation of TOP’s responses may give indication of the following: Areas where TOP is willing and unwilling to make concessions What factors or issues TOP places a high value on
If there are any non-commercial or emotional factors that may be pertinent TOP’s underlying interests – why they are taking the positionthey are.
D
Explanation:
There are 5 key phases of negotiation:
The opening phase: confirm understanding and get the issue on the table
The testing phase: check assumption and confirm understanding The proposing phase: asking ‘if’
The bargaining phase: using tradeables
The agreement and closing phase
The testing could take the form of questions following a presentation by either side or questions on a tender or proposal document received by the buyer from the potential supplier. The testing phase is necessary to confirm that your approach and objectives are appropriate for the negotiation situation you now find yourself in. Careful listening, observation and interpretation of TOP’s responses may give indication of the following: Areas where TOP is willing and unwilling to make concessions What factors or issues TOP places a high value on
If there are any non-commercial or emotional factors that may be pertinent TOP’s underlying interests – why they are taking the positionthey are.
Question #69
Which of these personal power bases stems from the manager’s position in the organisation and the authority that lies in that position?
- A . Coercive power
- B . Legitimate power
- C . Expert power
- D . Reward power
Correct Answer: B
B
Explanation:
Legitimate power comes from the belief that a person has the formal right to make demands, and to expect others to be compliant and obedient. Legitimate power comes from rules, formal authority, organisation rank, staff grade or official position held. In commercial negotiation, legitimate power can be demonstrated by job title and rank. LO 1, AC 1.3
B
Explanation:
Legitimate power comes from the belief that a person has the formal right to make demands, and to expect others to be compliant and obedient. Legitimate power comes from rules, formal authority, organisation rank, staff grade or official position held. In commercial negotiation, legitimate power can be demonstrated by job title and rank. LO 1, AC 1.3
Question #70
Which of the following are most likely to be fixed costs of an airline? Select TWO that apply.
- A . Purchase of aircraft
- B . Catering services
- C . Advertising and promotion
- D . Flightcrew training
- E . Fuel
Correct Answer: A,D
A,D
Explanation:
Fixed costs (FC) are costs that do not vary with volume. To an airline once aircraft are purchased, flight crews trained and departures scheduled, costs are disproportionately fixed.
Variable costs (VC) are those which vary with the amount produced. Fuel, catering services
and marketing are examples of variable.
LO 2, AC 2.1
A,D
Explanation:
Fixed costs (FC) are costs that do not vary with volume. To an airline once aircraft are purchased, flight crews trained and departures scheduled, costs are disproportionately fixed.
Variable costs (VC) are those which vary with the amount produced. Fuel, catering services
and marketing are examples of variable.
LO 2, AC 2.1
Question #71
Which of the following best describes Leverage quadrant in Kraljicmatrix?
- A . Low risk, high importance
- B . High value, high complex
- C . Low risk, low importance
- D . High complex, low importance
Correct Answer: A
A
Explanation:
In 1983, Peter Kraljic devised a means to segment the supplier base in the article in HBR. In this, heargued that supply items should be mapped against two key dimensions: risk and profitability.
Risk relates to the likelihood for an unexpected event in the supply chains to disrupt operations. For instance, in important areas of spend, such as tire suppliers for an automotive are business critical, and should a disruption occur, the auto company is likely itself to face substantial problems.
Profitability describes the impact of a supply item upon the bottom line. For certain areas of spend, such as stationery, supplies have only a negligible effect on profits. In other categories, a single source of supply can make or break a business.
Putting these two dimensions together yields a classic two-by-two matrix.
A
Explanation:
In 1983, Peter Kraljic devised a means to segment the supplier base in the article in HBR. In this, heargued that supply items should be mapped against two key dimensions: risk and profitability.
Risk relates to the likelihood for an unexpected event in the supply chains to disrupt operations. For instance, in important areas of spend, such as tire suppliers for an automotive are business critical, and should a disruption occur, the auto company is likely itself to face substantial problems.
Profitability describes the impact of a supply item upon the bottom line. For certain areas of spend, such as stationery, supplies have only a negligible effect on profits. In other categories, a single source of supply can make or break a business.
Putting these two dimensions together yields a classic two-by-two matrix.
Diagram
Description automatically generated
Source: Peter Kraljic, HBR
Reference:
– CIPS study guide page 63-73
– What Is The Kraljic Matrix? (forbes.com) LO 1, AC 1.4
Question #71
Which of the following best describes Leverage quadrant in Kraljicmatrix?
- A . Low risk, high importance
- B . High value, high complex
- C . Low risk, low importance
- D . High complex, low importance
Correct Answer: A
A
Explanation:
In 1983, Peter Kraljic devised a means to segment the supplier base in the article in HBR. In this, heargued that supply items should be mapped against two key dimensions: risk and profitability.
Risk relates to the likelihood for an unexpected event in the supply chains to disrupt operations. For instance, in important areas of spend, such as tire suppliers for an automotive are business critical, and should a disruption occur, the auto company is likely itself to face substantial problems.
Profitability describes the impact of a supply item upon the bottom line. For certain areas of spend, such as stationery, supplies have only a negligible effect on profits. In other categories, a single source of supply can make or break a business.
Putting these two dimensions together yields a classic two-by-two matrix.
A
Explanation:
In 1983, Peter Kraljic devised a means to segment the supplier base in the article in HBR. In this, heargued that supply items should be mapped against two key dimensions: risk and profitability.
Risk relates to the likelihood for an unexpected event in the supply chains to disrupt operations. For instance, in important areas of spend, such as tire suppliers for an automotive are business critical, and should a disruption occur, the auto company is likely itself to face substantial problems.
Profitability describes the impact of a supply item upon the bottom line. For certain areas of spend, such as stationery, supplies have only a negligible effect on profits. In other categories, a single source of supply can make or break a business.
Putting these two dimensions together yields a classic two-by-two matrix.
Diagram
Description automatically generated
Source: Peter Kraljic, HBR
Reference:
– CIPS study guide page 63-73
– What Is The Kraljic Matrix? (forbes.com) LO 1, AC 1.4
Question #71
Which of the following best describes Leverage quadrant in Kraljicmatrix?
- A . Low risk, high importance
- B . High value, high complex
- C . Low risk, low importance
- D . High complex, low importance
Correct Answer: A
A
Explanation:
In 1983, Peter Kraljic devised a means to segment the supplier base in the article in HBR. In this, heargued that supply items should be mapped against two key dimensions: risk and profitability.
Risk relates to the likelihood for an unexpected event in the supply chains to disrupt operations. For instance, in important areas of spend, such as tire suppliers for an automotive are business critical, and should a disruption occur, the auto company is likely itself to face substantial problems.
Profitability describes the impact of a supply item upon the bottom line. For certain areas of spend, such as stationery, supplies have only a negligible effect on profits. In other categories, a single source of supply can make or break a business.
Putting these two dimensions together yields a classic two-by-two matrix.
A
Explanation:
In 1983, Peter Kraljic devised a means to segment the supplier base in the article in HBR. In this, heargued that supply items should be mapped against two key dimensions: risk and profitability.
Risk relates to the likelihood for an unexpected event in the supply chains to disrupt operations. For instance, in important areas of spend, such as tire suppliers for an automotive are business critical, and should a disruption occur, the auto company is likely itself to face substantial problems.
Profitability describes the impact of a supply item upon the bottom line. For certain areas of spend, such as stationery, supplies have only a negligible effect on profits. In other categories, a single source of supply can make or break a business.
Putting these two dimensions together yields a classic two-by-two matrix.
Diagram
Description automatically generated
Source: Peter Kraljic, HBR
Reference:
– CIPS study guide page 63-73
– What Is The Kraljic Matrix? (forbes.com) LO 1, AC 1.4
Question #71
Which of the following best describes Leverage quadrant in Kraljicmatrix?
- A . Low risk, high importance
- B . High value, high complex
- C . Low risk, low importance
- D . High complex, low importance
Correct Answer: A
A
Explanation:
In 1983, Peter Kraljic devised a means to segment the supplier base in the article in HBR. In this, heargued that supply items should be mapped against two key dimensions: risk and profitability.
Risk relates to the likelihood for an unexpected event in the supply chains to disrupt operations. For instance, in important areas of spend, such as tire suppliers for an automotive are business critical, and should a disruption occur, the auto company is likely itself to face substantial problems.
Profitability describes the impact of a supply item upon the bottom line. For certain areas of spend, such as stationery, supplies have only a negligible effect on profits. In other categories, a single source of supply can make or break a business.
Putting these two dimensions together yields a classic two-by-two matrix.
A
Explanation:
In 1983, Peter Kraljic devised a means to segment the supplier base in the article in HBR. In this, heargued that supply items should be mapped against two key dimensions: risk and profitability.
Risk relates to the likelihood for an unexpected event in the supply chains to disrupt operations. For instance, in important areas of spend, such as tire suppliers for an automotive are business critical, and should a disruption occur, the auto company is likely itself to face substantial problems.
Profitability describes the impact of a supply item upon the bottom line. For certain areas of spend, such as stationery, supplies have only a negligible effect on profits. In other categories, a single source of supply can make or break a business.
Putting these two dimensions together yields a classic two-by-two matrix.
Diagram
Description automatically generated
Source: Peter Kraljic, HBR
Reference:
– CIPS study guide page 63-73
– What Is The Kraljic Matrix? (forbes.com) LO 1, AC 1.4
Question #71
Which of the following best describes Leverage quadrant in Kraljicmatrix?
- A . Low risk, high importance
- B . High value, high complex
- C . Low risk, low importance
- D . High complex, low importance
Correct Answer: A
A
Explanation:
In 1983, Peter Kraljic devised a means to segment the supplier base in the article in HBR. In this, heargued that supply items should be mapped against two key dimensions: risk and profitability.
Risk relates to the likelihood for an unexpected event in the supply chains to disrupt operations. For instance, in important areas of spend, such as tire suppliers for an automotive are business critical, and should a disruption occur, the auto company is likely itself to face substantial problems.
Profitability describes the impact of a supply item upon the bottom line. For certain areas of spend, such as stationery, supplies have only a negligible effect on profits. In other categories, a single source of supply can make or break a business.
Putting these two dimensions together yields a classic two-by-two matrix.
A
Explanation:
In 1983, Peter Kraljic devised a means to segment the supplier base in the article in HBR. In this, heargued that supply items should be mapped against two key dimensions: risk and profitability.
Risk relates to the likelihood for an unexpected event in the supply chains to disrupt operations. For instance, in important areas of spend, such as tire suppliers for an automotive are business critical, and should a disruption occur, the auto company is likely itself to face substantial problems.
Profitability describes the impact of a supply item upon the bottom line. For certain areas of spend, such as stationery, supplies have only a negligible effect on profits. In other categories, a single source of supply can make or break a business.
Putting these two dimensions together yields a classic two-by-two matrix.
Diagram
Description automatically generated
Source: Peter Kraljic, HBR
Reference:
– CIPS study guide page 63-73
– What Is The Kraljic Matrix? (forbes.com) LO 1, AC 1.4
Question #76
Spendwaterfall
- A . 2 and 4 only
- B . 3 and 4 only
- C . 1 and 2 only
- D . 1 and 3 only
Correct Answer: A
A
Explanation:
Understanding where and with whom your supplier spends their money, or understanding the ‘cost breakdowns’ or ‘price build-up’ of the goods andservices you purchase from the supplier, will help you know
where and when they can offer price concessions.
Cost information can be expressed with more impact through graphs that can be created using Excel and PowerPoint or other softwares. There are two commonly used models known as ‘spend waterfall’
and ‘spend tree’. Spend waterfall shows the build-up of costs, while the spend tree shows all the spends that an organisation makes.
There is no graph known as ‘spend candlesticks’. Candlestick chart is astyle of financial chart used to describe price movements of a security, derivative, or currency.
The aggregate expenditure model is a method of calculating GDP. The aggregate expenditure model focuses on the relationships between production (GDP) and planned spending: GDP = planned
spending = consumption + investment + government purchases + net exports.
A
Explanation:
Understanding where and with whom your supplier spends their money, or understanding the ‘cost breakdowns’ or ‘price build-up’ of the goods andservices you purchase from the supplier, will help you know
where and when they can offer price concessions.
Cost information can be expressed with more impact through graphs that can be created using Excel and PowerPoint or other softwares. There are two commonly used models known as ‘spend waterfall’
and ‘spend tree’. Spend waterfall shows the build-up of costs, while the spend tree shows all the spends that an organisation makes.
There is no graph known as ‘spend candlesticks’. Candlestick chart is astyle of financial chart used to describe price movements of a security, derivative, or currency.
The aggregate expenditure model is a method of calculating GDP. The aggregate expenditure model focuses on the relationships between production (GDP) and planned spending: GDP = planned
spending = consumption + investment + government purchases + net exports.
Question #77
How contribution is calculated in break-even analysis?
- A . Fixed costs divided by variable costs
- B . Variable costs subtracted from price
- C . Price minus fixed costs
- D . Variable costs subtracted from fixed costs
Correct Answer: B
B
Explanation:
Contribution = Price – Variable cost Break-evenpoint (volume) = Fixed cost/Contribution
B
Explanation:
Contribution = Price – Variable cost Break-evenpoint (volume) = Fixed cost/Contribution
Question #78
Which of the following would cause a demand curve for a good to be price inelastic?
- A . There are a great number of substitutes for the good
- B . The consultancy service
- C . The luxury goods
- D . The necessary goods
Correct Answer: D
D
Explanation:
Essential goods andservices such as electricity, fuel, basic food stuffs, commuter transport and habitual products such as tobacco, alcohol and sugar-based drinks are often sited as facing a relatively inelastic demand curve. This means when the price goes up, the quantity demanded does not decrease very much and so they are often the target of government taxation.
LO2, AC 2.2
D
Explanation:
Essential goods andservices such as electricity, fuel, basic food stuffs, commuter transport and habitual products such as tobacco, alcohol and sugar-based drinks are often sited as facing a relatively inelastic demand curve. This means when the price goes up, the quantity demanded does not decrease very much and so they are often the target of government taxation.
LO2, AC 2.2