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Free CIPS L3M3 Exam Questions and Answer
NEW QUESTION # 14
Where the buying organisation's contract manager feels that a contractor has under-performed, which one of the following actions is normally not recommended?
- A. Offering a bonus payment for remedying any defects
- B. Issuing a termination notice
- C. Serving a deficiency notice to indicate the significance of the situation
- D. Implementing any liquidated damages clause in the contract
Answer: A
Explanation:
Rewarding poor performance is not to be encouraged.
The other three options shown are often capable of motivating suppliers.
NEW QUESTION # 15
A justification of an action (expenditure) that is to be taken by an organisation.
- A. Project management
- B. Competitive tender
- C. Cost analysis
- D. Business case
Answer: D
Explanation:
The business case will justify the expenditure.
Of the other answers offered, the only one which needs explanation presumably is 'cost analysis'. This needs to be distinguished from 'price analysis'.
NEW QUESTION # 16
Which of the following are barriers to trade?
- A. Subsidies
- B. Embargoes
- C. Complex customs procedures
- D. Exchange controls
- E. Customs duties / tariffs
- F. Quotas
Answer: A,C,D,E,F
Explanation:
All of those shown are barriers to trade.
Quotas place a numerical limit on what may be imported; embargoes ban certain goods (for exam-ple, no goods originating in Israel may be imported); duties discourage imports; subsidies of local industries undercut foreign competitors (have a search for stories on large airlines being subsidised in various countries, commonly for reasons of prestige); complex customs procedures make import-ing foreign goods difficult (great examples involving France); exchange controls limit the amount of a currency which can be converted into another currency, limiting payment possibilities for imports. Etc.
Of course, most countries using any of these mechanisms repeatedly eulogise on the benefits of free trade....
NEW QUESTION # 17
'A purchasing procedure whereby potential suppliers are invited to make a firm and unequivocal offer of the price and terms on which they will supply specified goods or services which, on ac-ceptance, shall be the basis of the subsequent contract'
- A. Expression of interest
- B. Request for information
- C. Competitive dialogue
- D. Invitation to tender
Answer: D
Explanation:
The 'firm and unequivocal offer' and 'the basis of a contract' indicate the reference to a formal and binding tender procedure. The answer is therefore 'invitation to tender'.
NEW QUESTION # 18
When both buyer and seller share cost information with each other (in both directions), in order to collaborate in cost reduction activities.
- A. Open book costing
- B. Cost transparency
- C. Cost analysis
- D. Co-destiny
Answer: B
Explanation:
Cost transparency - this requires a high trust level, as both parties open up and share information on the costs of their operations.
Open book costing is a one-way share - the seller allows the buyer to look at their actual costs.
NEW QUESTION # 19
Which of the following is unlikely to be regarded as a conformance specification?
- A. A brand name
- B. A statement of outputs
- C. Drawings
- D. A chemical formula
Answer: B
Explanation:
Outputs link to the concept of a performance (or 'output') specification, not a conformance specifi-cation.
NEW QUESTION # 20
The expression 'consideration' means:
- A. Being nice to people, in the expectation that they in turn will be nice
- B. Some form of valuable exchange
- C. Taking time to think about the gravity of the contract you may be about to be entering into
- D. Being over 18 and being of sound mind
Answer: B
Explanation:
Consideration is one of the essential elements of a contract in English law, and it essentially means the exchange of something of value for something else of value, typically goods or services for money.
Normally it is the price to be paid in exchange for goods or services.
NEW QUESTION # 21
The variable cost of a bottle of water is 25 cents. Selling price is $1, and fixed costs are one hundred thousand dollars. How many bottles of water must be sold to reach breakeven point?
- A. 13,333
- B. 400,000
- C. 4 million
- D. 133,333
Answer: D
Explanation:
The calculation which needs to be done is one hundred thousand (dollars) divided by the contribu-tion per bottle. The contribution per bottle is one dollar minus the variable cost - 25 cents. Thus the contribution is 75 cents. One hundred thousand divided by $0.75 = 133,333. Note the answer is in units - in response to the question of how many bottles / units must be sold to break even.
For people who feel they have difficulty with calculations, just look at the possible answers. If the contribution is a bit less than a dollar, and the fixed costs are 100,000, we would expect the answer to be a number a little over 100,000 - one of the answers fits the bill, and this is the correct answer. So the question may look complicated or difficult, but if you stay calm and think it through, it's not that difficult.
NEW QUESTION # 22
Which one of the following is from the STEEPLE framework?
- A. Socio-economic
- B. Socio-logical
- C. Socio-cultural
- D. Socio-technical
- E. Socio-pathic
Answer: C
Explanation:
Socio-cultural. The only 'S' in the framework.
NEW QUESTION # 23
Under a XXXX contract, the buyer does commit to purchase a given quantity over a given period of time, but the precise number of orders and their quantities is unknown at the start of the period. What expression has been replaced by XXXX?
- A. Term
- B. Oral
- C. Framework
- D. Call-off
Answer: D
Explanation:
The fact that the time period and the total quantity is known means it is a 'call-off' contract. The volumes of product are 'called off' from the contract as required by the buying organisation.
Make sure you understand the difference between a call-off contract and a framework arrangement.
Under a framework arrangement, there is no obligation on the part of the buyer to use the goods / services specified.
NEW QUESTION # 24
Which one of the following could not be classed as a form of performance specification?
- A. Input-driven
- B. Output-based
- C. Outcome-focused
- D. Functional
Answer: A
Explanation:
Since performance specifications are all to do with outputs, 'input-driven' leaps out as being the cor-rect answer here.
NEW QUESTION # 25
Revenue-earning possibilities which are foregone as a result of implementing a plan; the cost of not doing something else.
- A. Absorption cost
- B. Overhead cost
- C. Opportunity cost
- D. Indirect cost
Answer: C
Explanation:
An opportunity cost is the cost of not being able to do something else.
For example, if a firm opts to build a new factory, it may not be able to create ten new retail outlets which was another option open to it, in spending these particular funds. Or if you buy a holiday, you may not be able to buy a new television. The television is the opportunity cost of the holiday ie the benefit foregone.
The other types of cost shown are methods of classifying actual (real) costs. Opportunity costs are, in a sense, not real; they are hypothesized and therefore do not show in the balance sheet or profit and loss account of a business.
NEW QUESTION # 26
Which STEEPLE factor deals with issues of foreign exchange rates, inflation, consumer spending, labour costs and unemployment levels?
- A. Political
- B. Environmental
- C. Socio-cultural
- D. Economic
Answer: D
Explanation:
Economic.
I think foreign exchange at least couldn't fit into any other STEEPLE factor, so that's a clincher and it has to be 'economic'.
NEW QUESTION # 27
Which one of the following is not an 'E' from STEEPLE?
- A. Ethical
- B. Environmental
- C. Epistemological
- D. Economic
Answer: C
Explanation:
Even if you don't know what 'Epistemological' means, you should know it's the odd one out.
It relates to the philosophical study of knowledge.
NEW QUESTION # 28
What is a contract?
- A. An agreement between two or more parties which is intended to be enforceable by any means feasible.
- B. An agreement between two or more parties which is intended to be honoured.
- C. An agreement between two or more parties which is enforceable in law.
- D. An agreement between two or more parties which, all other things being equal, is in-tended to be enforceable by law.
Answer: C
Explanation:
An agreement between two or more parties which is enforceable in law.
This definition separates a contract from a social or domestic arrangement, in that contracts are in-tended to be enforceable at law. The other answers shown here dilute the concept, and so are unac-ceptable as answers to the question.
NEW QUESTION # 29
A 'cause and effect' or 'fishbone' diagram is also commonly known as:
- A. An Ishiguro diagram
- B. An Ishikawa diagram
- C. A Murakami diagram
- D. A Fukushima diagram
Answer: B
Explanation:
The answer is an Ishikawa Diagram.
Can be used in addressing quality problems, problems of under-performance, etc.
The other Japanese-sounding names shown as possible answers are spurious - two are novelists, and Fukushima was a serious environmental radioactive leak at a nuclear power station on the coast of Japan.
NEW QUESTION # 30
'Because they are set up for a specified duration, XXX contracts are subject to expiry rather than completion, unless they are renewed or extended.'
- A. Framework
- B. Spot
- C. Term
- D. Call-off
Answer: C
Explanation:
Term contracts are set up for a period of time, or a 'term'.
The other answer options shown here are the subject of other questions within this test.
NEW QUESTION # 31
In which quadrant of a SWOT analysis would the following appear? 'Ageing workforce, strong trade union representation, under-trained procurement department'.
- A. T
- B. O
- C. W
- D. S
Answer: C
Explanation:
Weaknesses.
One might use a SWOT analysis when appraising potential suppliers for a significant purchase.
NEW QUESTION # 32
Contribution is equivalent to:
- A. Selling price minus fixed costs
- B. Selling price minus variable costs
- C. Selling price minus total costs
- D. Selling price
Answer: B
Explanation:
Selling price minus variable costs = contribution., or more accurately 'contribution towards fixed costs and making a profit'. I find this longer term for 'fixed costs' to be quite helpful in clarifying exactly what we are talking about here.
NEW QUESTION # 33
A contract clause indicating damages to be recovered in the event of under-performance, with the proposed damages being a genuine pre-estimate of loss, is called a:
- A. Penalty clause
- B. Liquidated damages clause
- C. Unliquidated damages clause
- D. Punitive damages clause
Answer: B
Explanation:
Liquidated damages clause.
The question is pretty much a definition of a liquidated damages clause.
NEW QUESTION # 34
A sum of money credited to a buyer by a seller in recognition of a large volume of purchases bought throughout the previous year might be called a:
- A. Vendor debit
- B. Retrospective reward
- C. Historic refund
- D. Retrospective rebate
Answer: D
Explanation:
It's a retrospective rebate, and can be a highly significant way of (often hidden) discounting for many businesses - sometimes a 'life-saver'. Something to think about in an open book costing situa-tion - are there rebates to suppliers which are 'forgotten' in discussions?
NEW QUESTION # 35
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