QUESTION: 33

A procurement manager is requested to source a major component. She needs information on sup- pliers' direct and indirect cost, fixed and variable costs to prepare for negotiations. Therefore, she collects 17 annual reports from potential suppliers who are competing in the same industry. In order to estimate an approximate value of fixed and variable costs in that industry, which of the following technique should be adopted by the procurement manager?

Line of best fit
Variance calculation
Total cost of ownership
Open-book costing

Answer(s): A

Explanation:

Public annual reports can be a source of information that helps the procurement professional to analyse an industry's cost and revenue using the line of best fit. Line of best fit is one of the most important outputs of regression analysis. Regression refers to a quantitative measure of the relationship between one or more independent variables and a resulting dependent variable. Regression is of use to professionals in a wide range of fields from science and public service to financial analysis.
In this case, by collecting and analysing 17 annual reports, the procurement manager can find the line of best fit which goes approximately through the middle of the data points with an equal num- ber of data points above and below it.
The slope of the line of best fit is the approximate variable costs the industry. The easiest way to calculate it is to take a point at the right-hand end of the line of best fit and note its cost and output levels. Divide the cost by the output and this gives and approximate figure for the cost per unit of output or variable cost. This gives an approximate value for the industry fixed and variable costs.

Reference:

CIPS study guide page 99-100
LO 2, AC 2.3

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QUESTION: 34

A charity is reviewing their spend and budget after an operation in flooded areas. They realise that the operators save money against the budgeting plan. This saving is known as...?

Negative budget
Positive variance
Negative variance
Positive budget

Answer(s): C

Explanation:

The difference between the actual spend and budgeted spend is known as variance. The formula for variance is:
Variance = Actual spend - Budgeted spend
Variances can be adverse/unfavourable or favourable ie they can be positive or negative. Be very careful with these terms. A positive or a negative variance may be favourable or it may be adverse/ unfavourable.
Adverse variances
Adverse variances are those variances that are unfavourable to the firm. Examples would be sales below plan; costs above budget, cash receipts lower than expected, and overtime payment more than forecast.
Favourable variances
Favourable variances are those variances that are beneficial to the business. Examples would be sales ahead of plan, costs below budget, and wages below forecast.
Positive variance
A positive variance occurs where 'actual' exceeds 'planned' or 'budgeted' value. Examples might be actual sales are ahead of the budget.
Negative variance
A negative variance occurs where 'actual' is less than 'planned' or 'budgeted' value. Examples would be when the raw materials cost less than expected, sales were less than predicted, and labour costs were below the budgeted figure.
When the operators create saving, it means that the Actual spend is less than Budgeted spend.
Therefore the variance is negative.

Reference:

- Variance analysis
- CIPS study guide page 57-59
LO 1, AC 1.4

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QUESTION: 35

Which of the following can directly affect labour variance? Select 2 that apply:

Wage rate per hour
Inflation
Company's budget
Overhead expenditure
Overtime

Answer(s): A,E

Explanation:

Labour variance refers to a situation in which actual costs of labor differ from projected or budgeted labor costs. This concept is most commonly applied in manufacturing environments. Labour variance either results from efficiency or rate discrepancies. Efficiency variance results when actual time worked is more or less than budgeted time for a project. Rate variance means you paid more per hour worked than expected. This may occur with overtime pay or when you have higher paid employees on a project than projected. Labour variance is fairly typical, but modest variance is usually not a big factor in manufacturing, because materials and other production costs are often much higher.
LO 1, AC 1.4

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QUESTION: 36

Which of the following areas is specified by ISO/IEC 27001 family?

The dimensions and associated tolerances for a series of housings for piston seals
The requirements for an information security management system
Evaluation and assessment of mutual agreed customer food safety requirements
The requirements for an environmental management system

Answer(s): B

Explanation:

ISO/IEC 27001 is widely known, providing requirements for an information security management system (ISMS), though there are more than a dozen standards in the ISO/IEC 27000 family. Using them enables organizations of any kind to manage the security of assets such as financial infor- mation, intellectual property, employee details or information entrusted by third parties.
LO 3, AC 3.1

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QUESTION: 33

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