CIPS L4M2 Practice Exams
Last updated on Oct 22,2026- Exam Code: L4M2
- Exam Name: Defining Business Needs
- Certification Provider: CIPS
- Latest update: Oct 22,2026
Question #81
Due to increasing demand, a local restaurant is requesting its fish vendor to supply larger quantity.
The restaurant manager also asks the vendor whether it is possible to reduce the total price by 5%.
This is known as…?
- A . Straight rebuy
- B . Capital purchase
- C . Modified rebuy
- D . New purchase
Correct Answer: C
C
Explanation:
There are three major types of buying situations, which are new purchase, modified rebuy and straight rebuy. Three factors make the buying situations be different from the others, customers may face different problems in these situations.
A new purchase is a situation requiring the purchase of a product for the very first time.
A straight rebuy is when a company places a second order with a supplier that is identical to the first purchase it made.
A modified rebuy is when a company orders again from a supplier, but wants to change some aspect of the order, such as the quantity, packaging, product features, or delivery times. The scenario above is an example of modified rebuy.
Reference: – What is a straight rebuy example?
– CIPS study guide page 3-4
C
Explanation:
There are three major types of buying situations, which are new purchase, modified rebuy and straight rebuy. Three factors make the buying situations be different from the others, customers may face different problems in these situations.
A new purchase is a situation requiring the purchase of a product for the very first time.
A straight rebuy is when a company places a second order with a supplier that is identical to the first purchase it made.
A modified rebuy is when a company orders again from a supplier, but wants to change some aspect of the order, such as the quantity, packaging, product features, or delivery times. The scenario above is an example of modified rebuy.
Reference: – What is a straight rebuy example?
– CIPS study guide page 3-4
Question #82
Optimising inventory replenishment methods
- A . 1 and 4 only
- B . 2 and 3 only
- C . 1 and 3 only
- D . 2 and 4 only
Correct Answer: A
Question #82
Optimising inventory replenishment methods
- A . 1 and 4 only
- B . 2 and 3 only
- C . 1 and 3 only
- D . 2 and 4 only
Correct Answer: A
Question #82
Optimising inventory replenishment methods
- A . 1 and 4 only
- B . 2 and 3 only
- C . 1 and 3 only
- D . 2 and 4 only
Correct Answer: A
Question #85
The purchase is made in emergency
- A . 2 and 4 only
- B . 1 and 4 only
- C . 1 and 3 only
- D . 2 and 3 only
Correct Answer: A
A
Explanation:
The difference between the standard cost of direct materials specified for production and the actual cost of direct materials used in production is known as Direct Material Cost Variance. Material Cost Variance gives an idea of how much more or less cost has been incurred when compared with the standard cost. Thus, Variance Analysis is an important tool to keep a tab on the deviations from the standard set by a company.
Material Cost Variance can be due to less purchase price being paid than the standard or because of change in the quantity of material used. Thus, Material Cost Variance is made up of two components namely; Material Price Variance and Material Usage Variance. Among the 4 options:
– ‘The buyer updates purchase-to-pay system to track payment and delivery’: The use of e-procurement system can increase the productivity and create labour cost variance, not material cost variance.
– ‘An unprocessed goods received note is missing’: If a goods received note is missing, the buyer won’t pay for that batch, which create quantity variance.
– ‘The employees must work overtime to catch up with the customers’ orders’: Overtime salary can cause labour variance, not material cost variance.
– ‘The purchase is made in emergency’: Normally, the price in emergency situation is higher than usual. This can cause price variance.
Reference: – CIPS study guide page 57-59
– Material Variance | Cost, Price, Usage Variance Formula, Example – eFM (efinancemanage-ment.com)
LO 1, AC 1.4
A
Explanation:
The difference between the standard cost of direct materials specified for production and the actual cost of direct materials used in production is known as Direct Material Cost Variance. Material Cost Variance gives an idea of how much more or less cost has been incurred when compared with the standard cost. Thus, Variance Analysis is an important tool to keep a tab on the deviations from the standard set by a company.
Material Cost Variance can be due to less purchase price being paid than the standard or because of change in the quantity of material used. Thus, Material Cost Variance is made up of two components namely; Material Price Variance and Material Usage Variance. Among the 4 options:
– ‘The buyer updates purchase-to-pay system to track payment and delivery’: The use of e-procurement system can increase the productivity and create labour cost variance, not material cost variance.
– ‘An unprocessed goods received note is missing’: If a goods received note is missing, the buyer won’t pay for that batch, which create quantity variance.
– ‘The employees must work overtime to catch up with the customers’ orders’: Overtime salary can cause labour variance, not material cost variance.
– ‘The purchase is made in emergency’: Normally, the price in emergency situation is higher than usual. This can cause price variance.
Reference: – CIPS study guide page 57-59
– Material Variance | Cost, Price, Usage Variance Formula, Example – eFM (efinancemanage-ment.com)
LO 1, AC 1.4
Question #86
The buyer’s database is regarded as a primary data source.
Which of the following is also a source of primary data?
- A . Price lists collected from suppliers’ representatives at trade fairs
- B . Price listings on comparison websites and market exchanges
- C . Published economic indices such as the retail price index (RPI)
- D . Financial and trade press, including journals published by professional bodies
Correct Answer: A
Question #87
Which of the following are the fair and reasonable comparators in price analysis? Select TWO that apply:
- A . Pricing formula
- B . Price indices
- C . Strike price
- D . Cost driver
- E . Competitive bidding
Correct Answer: A, B
A, B
Explanation:
Price Analysis is the process of deciding if the asking price for a product or service is fair and rea-sonable, without examining the specific cost and profit calculations the vendor used in arriving at the price. It is basically a process of comparing the price with known indicators of reasonableness. When adequate price competition does not exist, some other form of analysis is required. Some reasons that could affect adequate price competition are: specifications are not definitive, tolerances are restrictive, or production capacity limits those eligible to bid. Examples of other forms of price analysis information include:
• Analysis of previous prices paid
• Comparison of vendor’s price with the in-house estimate
• Comparison of quotations or published price lists from multiple vendors
• Comparisons with government agencies (such as GSA in the US) published prices
A strike price is the set price at which a derivative contract can be bought or sold when it is exercised. For call options, the strike price is where the security can be bought by the option holder; for put options, the strike price is the price at which the security can be sold. Strike price is also known as the exercise price.
A cost driver is the direct cause of a cost and its effect is on the total cost incurred. For example, if you are to determine the amount of electricity consumed in a particular period, the number of units consumed determines the total bill for electricity. In such a scenario, the number of units of electricity consumed is a cost driver.
Reference: CIPS study guide page 35
LO 1, AC 1.2
A, B
Explanation:
Price Analysis is the process of deciding if the asking price for a product or service is fair and rea-sonable, without examining the specific cost and profit calculations the vendor used in arriving at the price. It is basically a process of comparing the price with known indicators of reasonableness. When adequate price competition does not exist, some other form of analysis is required. Some reasons that could affect adequate price competition are: specifications are not definitive, tolerances are restrictive, or production capacity limits those eligible to bid. Examples of other forms of price analysis information include:
• Analysis of previous prices paid
• Comparison of vendor’s price with the in-house estimate
• Comparison of quotations or published price lists from multiple vendors
• Comparisons with government agencies (such as GSA in the US) published prices
A strike price is the set price at which a derivative contract can be bought or sold when it is exercised. For call options, the strike price is where the security can be bought by the option holder; for put options, the strike price is the price at which the security can be sold. Strike price is also known as the exercise price.
A cost driver is the direct cause of a cost and its effect is on the total cost incurred. For example, if you are to determine the amount of electricity consumed in a particular period, the number of units consumed determines the total bill for electricity. In such a scenario, the number of units of electricity consumed is a cost driver.
Reference: CIPS study guide page 35
LO 1, AC 1.2
Question #87
Which of the following are the fair and reasonable comparators in price analysis? Select TWO that apply:
- A . Pricing formula
- B . Price indices
- C . Strike price
- D . Cost driver
- E . Competitive bidding
Correct Answer: A, B
A, B
Explanation:
Price Analysis is the process of deciding if the asking price for a product or service is fair and rea-sonable, without examining the specific cost and profit calculations the vendor used in arriving at the price. It is basically a process of comparing the price with known indicators of reasonableness. When adequate price competition does not exist, some other form of analysis is required. Some reasons that could affect adequate price competition are: specifications are not definitive, tolerances are restrictive, or production capacity limits those eligible to bid. Examples of other forms of price analysis information include:
• Analysis of previous prices paid
• Comparison of vendor’s price with the in-house estimate
• Comparison of quotations or published price lists from multiple vendors
• Comparisons with government agencies (such as GSA in the US) published prices
A strike price is the set price at which a derivative contract can be bought or sold when it is exercised. For call options, the strike price is where the security can be bought by the option holder; for put options, the strike price is the price at which the security can be sold. Strike price is also known as the exercise price.
A cost driver is the direct cause of a cost and its effect is on the total cost incurred. For example, if you are to determine the amount of electricity consumed in a particular period, the number of units consumed determines the total bill for electricity. In such a scenario, the number of units of electricity consumed is a cost driver.
Reference: CIPS study guide page 35
LO 1, AC 1.2
A, B
Explanation:
Price Analysis is the process of deciding if the asking price for a product or service is fair and rea-sonable, without examining the specific cost and profit calculations the vendor used in arriving at the price. It is basically a process of comparing the price with known indicators of reasonableness. When adequate price competition does not exist, some other form of analysis is required. Some reasons that could affect adequate price competition are: specifications are not definitive, tolerances are restrictive, or production capacity limits those eligible to bid. Examples of other forms of price analysis information include:
• Analysis of previous prices paid
• Comparison of vendor’s price with the in-house estimate
• Comparison of quotations or published price lists from multiple vendors
• Comparisons with government agencies (such as GSA in the US) published prices
A strike price is the set price at which a derivative contract can be bought or sold when it is exercised. For call options, the strike price is where the security can be bought by the option holder; for put options, the strike price is the price at which the security can be sold. Strike price is also known as the exercise price.
A cost driver is the direct cause of a cost and its effect is on the total cost incurred. For example, if you are to determine the amount of electricity consumed in a particular period, the number of units consumed determines the total bill for electricity. In such a scenario, the number of units of electricity consumed is a cost driver.
Reference: CIPS study guide page 35
LO 1, AC 1.2
Question #89
At which stage of through-life contract management, procurement team needs to identify sources of risk and the ways to mitigate them?
- A . Specification stage
- B . Supplier relationship stage
- C . Tendering stage
- D . Contracting stage
Correct Answer: B
B
Explanation:
Risk management has become incredibly complex, especially for capital purchase which requires through-life contract. Any source of risks should be identified and closely managed from the specification stage.
There should be sufficient information in the specification to minimise risks later in the through-life contract. Here is something to consider:
– Make sure the parties to the contract are clearly identified. This is particularly important if a prime contractor is being used. Allow them to subcontract elements of the specification.
– Clearly identify any testing and quality assurance procedures and who will perform them.
– Document every important aspect of the specification including a project plan
– Include a reasonable limitation of liability clause in the contract and reference it in the specification
– Identify any guarantees that are needed
– Be clear on what insurance will and will not cover
– Make sure there is clear audit trail of any changes to the specification together with approvals
LO 3, AC 3.2
B
Explanation:
Risk management has become incredibly complex, especially for capital purchase which requires through-life contract. Any source of risks should be identified and closely managed from the specification stage.
There should be sufficient information in the specification to minimise risks later in the through-life contract. Here is something to consider:
– Make sure the parties to the contract are clearly identified. This is particularly important if a prime contractor is being used. Allow them to subcontract elements of the specification.
– Clearly identify any testing and quality assurance procedures and who will perform them.
– Document every important aspect of the specification including a project plan
– Include a reasonable limitation of liability clause in the contract and reference it in the specification
– Identify any guarantees that are needed
– Be clear on what insurance will and will not cover
– Make sure there is clear audit trail of any changes to the specification together with approvals
LO 3, AC 3.2
Question #89
At which stage of through-life contract management, procurement team needs to identify sources of risk and the ways to mitigate them?
- A . Specification stage
- B . Supplier relationship stage
- C . Tendering stage
- D . Contracting stage
Correct Answer: B
B
Explanation:
Risk management has become incredibly complex, especially for capital purchase which requires through-life contract. Any source of risks should be identified and closely managed from the specification stage.
There should be sufficient information in the specification to minimise risks later in the through-life contract. Here is something to consider:
– Make sure the parties to the contract are clearly identified. This is particularly important if a prime contractor is being used. Allow them to subcontract elements of the specification.
– Clearly identify any testing and quality assurance procedures and who will perform them.
– Document every important aspect of the specification including a project plan
– Include a reasonable limitation of liability clause in the contract and reference it in the specification
– Identify any guarantees that are needed
– Be clear on what insurance will and will not cover
– Make sure there is clear audit trail of any changes to the specification together with approvals
LO 3, AC 3.2
B
Explanation:
Risk management has become incredibly complex, especially for capital purchase which requires through-life contract. Any source of risks should be identified and closely managed from the specification stage.
There should be sufficient information in the specification to minimise risks later in the through-life contract. Here is something to consider:
– Make sure the parties to the contract are clearly identified. This is particularly important if a prime contractor is being used. Allow them to subcontract elements of the specification.
– Clearly identify any testing and quality assurance procedures and who will perform them.
– Document every important aspect of the specification including a project plan
– Include a reasonable limitation of liability clause in the contract and reference it in the specification
– Identify any guarantees that are needed
– Be clear on what insurance will and will not cover
– Make sure there is clear audit trail of any changes to the specification together with approvals
LO 3, AC 3.2