CIPS L4M2 Exam - Topic 8 Question 57 Discussion

Actual exam question for CIPS's L4M2 exam

Question #: 57
Topic #: 8

[All L4M2 Questions]

After a project, the procurement team at CLK Ltd meets up and summarises on the performance. They see that they actually spent $5,000 less than planned budget. The team tries to identifies why there is such difference. This activity is known as...?

ACash flow analysis

BVariance analysis

CRolling budget

DCost modelling

Show Suggested Answer

Suggested Answer: B

The procurement team in the scenario is analysing the difference between the plan and actual spend. This activity is known as variance analysis. The sum of all variances gives a picture of the overall over-performance or under-performance for a particular reporting period. For each item, companies assess their favorability by comparing actual costs to standard costs in the industry.

For example, if the actual cost is lower than the standard cost for raw materials, assuming the same volume of materials, it would lead to a favorable price variance (i.e., cost savings). However, if the standard quantity was 10,000 pieces of material and 15,000 pieces were required in production, this would be an unfavorable quantity variance because more materials were used than anticipated.

- CIPS study guide page 57-58

- Variance Analysis - Learn How to Calculate and Analyze Variances (corporatefinanceinsti-tute.com)

LO 1, AC 1.4

by Luz at Apr 06, 2025, 11:37 AM

Limited Time Offer

25%

Off

Get Premium L4M2 Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Sheron

2 months ago

Surprised they spent less, good for them!

upvoted 0 times

...

Anna

2 months ago

I thought it was cash flow analysis?

upvoted 0 times

...

Honey

3 months ago

No way, it's rolling budget for sure!

upvoted 0 times

...

Mitzie

3 months ago

Variance analysis is the right term here.

upvoted 0 times

...

Celestine

3 months ago

That's definitely variance analysis!

upvoted 0 times

...

Pearlene

3 months ago

I keep mixing up these terms, but I feel like rolling budget is about adjusting forecasts, not analyzing past performance.

upvoted 0 times

...

Ammie

4 months ago

This sounds similar to a practice question we did on budget reviews, and I think variance analysis was the answer there too.

upvoted 0 times

...

Fernanda

4 months ago

I'm not entirely sure, but I remember something about cash flow analysis being more about timing rather than performance differences.

upvoted 0 times

...

Luis

4 months ago

I think this might be variance analysis since it involves comparing actual spending to the budget.

upvoted 0 times

...

Kris

4 months ago

Okay, let me break this down. The question is asking about the activity of analyzing the difference between the planned and actual spend. I think the key is understanding what "variance analysis" means in this context. I'll need to carefully read through the options to make the right choice.

upvoted 0 times

...

Tina

4 months ago

Variance analysis, that's the one! I remember learning about this in class - it's the process of comparing actual results to the budget and identifying the reasons for any differences. This is a classic procurement question, so I feel confident I can nail this.

upvoted 0 times

...

Shannon

5 months ago

Hmm, I'm a bit unsure about this one. Is variance analysis the right term for investigating why the actual spend was less than the planned budget? I'll need to think through the differences between the options to make sure I select the correct answer.

upvoted 0 times

...

Elenor

5 months ago

This seems like a straightforward variance analysis question. I'll focus on understanding the key details about the budget and actual spend, and then select the option that best describes the activity of analyzing the difference.

upvoted 0 times

...