QUESTION: 29

This is the information on an organisation's activities over the past year
- Sale were $5,000,000. The value of accounts receivable was $450,000 at the start of the year and $525,000 at the end of the year
- The value of direct costs was $2,500,000 and 75% of this was bought on credit
- Indirect costs were $3,000,000 and 25% of this was bought on credit
- During the year the organization spent $1,500,000 on new assets and sold $150,000 of old assets. $1,000,000 of the spend on assets was funded by a bank loan
- The organization declared a dividend of $200,000 at the end of the year but this was not paid for another two months
- Opening balance was $175,000

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

$1,675,000
$1,875,000
$1,700,000
$2,025,000

Answer(s): B

Explanation:

In this question, you should understand the concept of cash flow and formula of cash flow. Cash flow calculates the physical money moving in and out a company's bank balance. The cash flow from sale activity is:
cash flow from sale = account receivable at beginning of the year + revenue - account receivable at the end of the year = $450,000 + $5,000,000 - $525,000 = $4,925,000 75% of direct costs was bought by credit, therefore, the company spent 25% on direct cost: - $2,500,000*25/100 = -$625,000
25% of indirect costs was bought on credit. Cash flow out on indirect costs is: -$3,000,000*75/100 = - $2,250,000
Company spent $1,500,000 on new assets funded by a loan of $1,000,000. Cash flow out from this activity is -$500,000
Company received $150,000 from selling old assets
Dividends have not been paid for another 2 months, thus, they are not accounted as cash flow out. The bank balance at the end of the year is: $175,000 + $4,925,000 - $625,000 - $2,250,000 - $500,000 + $150,000 = $1,875,000
LO 1, AC 1.4

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QUESTION: 30

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

Installation
Design
In-service support
Customer support

Answer(s): B

Explanation:

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

Reference:

CIPS study guide page 131
LO 3, AC 3.2

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QUESTION: 31

Interserve is a construction contractor in UK.
When receiving a huge and complex project, Inter- serve's procurement manager assesses the risks by quantifying them and recommends other stake- holders to plan mitigating actions. Is the procurement manager's action justified?

No, because no risks can be quantified, therefore the procurement manager's action is impossible.
Yes, because procurement manager needs to assess the risks to prioritise and mitigate any potential risks
Yes, because all the risks should be quantified and eliminated completely before they happen
No, because embedding the risk into pricing will decrease the company's competitiveness

Answer(s): B

Explanation:

Assessing the risks by quantifying them should be done. Even with qualitative risk assessment, quantifying is still important since risks need to be prioritised. Risk assessment can be qualitative or quantitative. Perform qualitative and perform quantitative risk analysis are two processes within the project risk management knowledge area, in the planning process group.
While qualitative risk analysis should generally be performed on all risks, for all projects, quantitative risk analysis has a more limited use, based on the type of project, the project risks, and the availability of data to use to conduct the quantitative analysis.
Qualitative Risk Analysis
A qualitative risk analysis prioritises the identified project risks using a pre-defined rating scale. Risks will be scored based on their probability or likelihood of occurring and the impact on project objectives should they occur.
Probability/likelihood is commonly ranked on a zero to one scale (for example, .3 equating to a 30% probability of the risk event occurring).
The impact scale is organizationally defined (for example, a one to five scale, with five being the highest impact on project objectives - such as budget, schedule, or quality). A qualitative risk analysis will also include the appropriate categorization of the risks, either source- based or effect-based.
Quantitative Risk Analysis
A quantitative risk analysis is a further analysis of the highest priority risks during a which a numerical or quantitative rating is assigned in order to develop a probabilistic analysis of the project.
A quantitative analysis:
- Quantifies the possible outcomes for the project and assesses the probability of achieving specific project objectives
- Provides a quantitative approach to making decisions when there is uncertainty
- Creates realistic and achievable cost, schedule or scope targets In order to conduct a quantitative risk analysis, you will need high-quality data, a well-developed project model, and a prioritized lists of project risks (usually from performing a qualitative risk analysis).

Reference:

CIPS study guide page 143-144
LO 3, AC 3.3

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QUESTION: 32

Which of the following are considered as direct costs in a construction company?
Select 2 optoions.

Raw materials
An employee is hired to work on a project, either exclusively or for an assigned number of hours
The materials and supplies needed for the company's day-to-day operations.
Advertising and marketing communication
Clerical assistants who maintain the office

Answer(s): A,B

Explanation:

Direct costs are directly associated with the production of a good or service. In this question, 'An employee is hired to work on a project, either exclusively or for an assigned number of hours' and 'Raw materials' are directly related to producing the product.

Indirect costs are the general costs of the organisation - these costs cannot easily be attributed to specific products or services (also known as overheads). 'The materials and supplies needed for the company's day-to-day operations' or 'Clerical assistants who maintain the office' or 'Advertising and marketing communication' is example of indirect cost.

Reference:

CIPS study guide page 25-26
LO 1, AC 1.2

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