Procurement and Cost Control Quiz
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Questions and Answers

What is the difference between expenditure and cost?

  • Expenditure refers to the amount of money used to make a product or deliver a service, while cost refers to the amount of money spent by a business.
  • Expenditure and cost are interchangeable terms.
  • 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. (correct)
  • Expenditure and cost are unrelated terms.

    • What is Maverick spend?

  • Authorized spend, often with approved suppliers.
  • Spend on maverick equipment.
  • Unauthorized spend, often with non-approved suppliers. (correct)
  • Spend on equipment that is not authorized.

    • What are examples of procurement cost control?

  • Marketing and advertising expenses only.
  • Production supplies and asset purchases only.
  • Rent, utilities, and office supplies only.
  • Services, information technology, staff training, production supplies, office consumables, utilities, asset purchases, and lease rentals. (correct)

    • What are direct costs?

    <p>Costs that can be traced in full to a specific unit of activity.</p> Signup and view all the answers

    What are semi-variable costs?

    <p>Costs that have both fixed and variable cost elements, such as utilities.</p> Signup and view all the answers

    What is the relationship between fixed costs and variable costs in total costs?

    <p>Total costs are the sum of fixed costs and variable costs.</p> Signup and view all the answers

    What is the difference between expenditure and cost?

    <p>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.</p> Signup and view all the answers

    What is Maverick spend?

    <p>Unauthorized spend, often with non-approved suppliers.</p> Signup and view all the answers

    What are examples of procurement cost control?

    <p>Services, information technology, staff training, production supplies, office consumables, utilities, asset purchases, and lease rentals.</p> Signup and view all the answers

    What are direct costs?

    <p>Costs that can be traced in full to a specific unit of activity.</p> Signup and view all the answers

    What are semi-variable costs?

    <p>Costs that have both fixed and variable cost elements, such as utilities.</p> Signup and view all the answers

    What is the relationship between fixed costs and variable costs in total costs?

    <p>Total costs are the sum of fixed costs and variable costs.</p> Signup and view all the answers

    Which type of procurement cost will be stored as inventory?

    <p>Stock costs</p> Signup and view all the answers

    What is the difference between CAPEX and OPEX?

    <p>CAPEX costs depreciate over time while OPEX are accounted for in the period they're incurred</p> Signup and view all the answers

    What are non-stock costs?

    <p>Intangible procurements that won't be stored</p> Signup and view all the answers

    What is the difference between direct and indirect costs?

    <p>Direct costs are required to procure items or services that are directly associated, while indirect costs are not directly associated</p> Signup and view all the answers

    What is the finance team's role in procurement cost management?

    <p>To maintain consistent and accurate accounting records</p> Signup and view all the answers

    What is CAPEX?

    <p>Costs incurred in the procurement of assets for the organization</p> Signup and view all the answers

    Why is a more thorough analysis of costs and benefits required for high-value complex procurements?

    <p>Because high-value procurements require significant investment</p> Signup and view all the answers

    Which of the following is an example of a non-stock procurement?

    <p>Software license</p> Signup and view all the answers

    What is the difference between direct and indirect costs in procurement?

    <p>Direct costs are associated with a job or contract, while indirect costs are not.</p> Signup and view all the answers

    What is the difference between CAPEX and OPEX?

    <p>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.</p> Signup and view all the answers

    What is the purpose of classifying procurement costs?

    <p>To allocate costs to the appropriate area</p> Signup and view all the answers

    When is a more thorough analysis of costs and benefits required for procurement?

    <p>For high-value, complex procurements</p> Signup and view all the answers

    What is the difference between stock and non-stock procurement?

    <p>Stock procurement is physical, tangible items that will be stored as inventory, while non-stock procurement are intangible procurements that won't be stored.</p> Signup and view all the answers

    What is the finance team's role in procurement cost management?

    <p>To maintain consistent and accurate accounting records</p> Signup and view all the answers

    Study Notes

    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.

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    Description

    Test your knowledge of procurement and cost control in business with this informative quiz. From understanding the difference between expenditure and cost, to learning about addressable spend and Maverick spending, this quiz covers all the important concepts. You will also get to explore different types of costs, including direct, indirect, fixed, variable, and semi-variable costs, and discover how they impact a business's bottom line. Take this quiz to see how well you understand procurement and cost control in business!

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