Procurement and Cost Control Quiz

Understanding Procurement and Cost Control in Business

• Procurement is the action of obtaining something and ensuring good value for the cost of obtaining goods or services.
• Expenditure refers to the amount of money spent by a business, while cost refers to the amount of money used to make a product or deliver a service.
• The portion of an organization's spend that procurement can influence is known as "addressability of spend," while costs out of procurement control are called "non-influenceable spend."
• Setting targets for addressable spend allows the procurement team to measure how well end-users are using negotiated contracts and reduce Maverick spending.
• Maverick spend is defined as unauthorized spend, often with non-approved suppliers.
• Examples of procurement cost control include services, information technology, staff training, production supplies, office consumables, utilities, asset purchases, and lease rentals.
• Costs can be classified as direct, indirect, fixed, variable, semi-variable, or total costs.
• Direct costs can be traced in full to a specific unit of activity, while indirect costs are general running costs of the organization.
• Fixed costs are costs that must be paid regardless of the volume of the product or service produced, while variable costs change in proportion to the output of the business.
• Semi-variable costs have both fixed and variable cost elements, such as utilities.
• Total costs are an aggregation of all the costs incurred in a period, and the relationship between costs and volumes or outputs can be classified by their behavior to changes in volumes or output.
• On a graph, the gradient will be the same on the variable cost line and the total cost line, and total costs are the sum of fixed costs and variable costs.

Understanding Procurement and Cost Control in Business

• Procurement is the action of obtaining something and ensuring good value for the cost of obtaining goods or services.
• Expenditure refers to the amount of money spent by a business, while cost refers to the amount of money used to make a product or deliver a service.
• The portion of an organization's spend that procurement can influence is known as "addressability of spend," while costs out of procurement control are called "non-influenceable spend."
• Setting targets for addressable spend allows the procurement team to measure how well end-users are using negotiated contracts and reduce Maverick spending.
• Maverick spend is defined as unauthorized spend, often with non-approved suppliers.
• Examples of procurement cost control include services, information technology, staff training, production supplies, office consumables, utilities, asset purchases, and lease rentals.
• Costs can be classified as direct, indirect, fixed, variable, semi-variable, or total costs.
• Direct costs can be traced in full to a specific unit of activity, while indirect costs are general running costs of the organization.
• Fixed costs are costs that must be paid regardless of the volume of the product or service produced, while variable costs change in proportion to the output of the business.
• Semi-variable costs have both fixed and variable cost elements, such as utilities.
• Total costs are an aggregation of all the costs incurred in a period, and the relationship between costs and volumes or outputs can be classified by their behavior to changes in volumes or output.
• On a graph, the gradient will be the same on the variable cost line and the total cost line, and total costs are the sum of fixed costs and variable costs.

Classification of Procurement Costs and the Perspective of the Finance Team

• Procurement costs can be classified as stock or non-stock, and direct or indirect.
• Stock items are physical, tangible items that will be stored as inventory, while non-stock items are intangible procurements that won't be stored.
• Direct costs are required to procure items or services that are directly associated with making an item or delivering a service, while indirect costs are not directly associated.
• Costs within an organization will fall into one area of each of these classifications.
• Stock costs are items procured for stock and will be put onto the organization's records for accounting purposes.
• Non-stock costs are items that are procured and won't be allocated to inventory.
• Direct costs are associated directly with a job or contract, while indirect costs are not.
• The finance team treats costs in a particular way to maintain consistent and accurate accounting records.
• Capital expenditure (CAPEX) refers to costs incurred in the procurement of assets for the organization, while operational expenditure (OPEX) are costs incurred in the day-to-day running of the organization.
• CAPEX requires significant investment and the cost will depreciate over the useful life of the asset, while OPEX are accounted for in the period in which they're incurred.
• Procuring complex, high-value assets requires a more thorough analysis of costs and benefits to justify the investment required.
• Procuring low-value, low-risk requirements may not require as detailed and in-depth analyses as high-value complex procurements.

Classification of Procurement Costs and the Perspective of the Finance Team

• Procurement costs can be classified as stock or non-stock, and direct or indirect.
• Stock items are physical, tangible items that will be stored as inventory, while non-stock items are intangible procurements that won't be stored.
• Direct costs are required to procure items or services that are directly associated with making an item or delivering a service, while indirect costs are not directly associated.
• Costs within an organization will fall into one area of each of these classifications.
• Stock costs are items procured for stock and will be put onto the organization's records for accounting purposes.
• Non-stock costs are items that are procured and won't be allocated to inventory.
• Direct costs are associated directly with a job or contract, while indirect costs are not.
• The finance team treats costs in a particular way to maintain consistent and accurate accounting records.
• Capital expenditure (CAPEX) refers to costs incurred in the procurement of assets for the organization, while operational expenditure (OPEX) are costs incurred in the day-to-day running of the organization.
• CAPEX requires significant investment and the cost will depreciate over the useful life of the asset, while OPEX are accounted for in the period in which they're incurred.
• Procuring complex, high-value assets requires a more thorough analysis of costs and benefits to justify the investment required.
• Procuring low-value, low-risk requirements may not require as detailed and in-depth analyses as high-value complex procurements.