ISM 630-005

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Exam: 630-005
C.P.M. Module 1: Purchasing Process
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1. XXXX.com has a 10% profit margin before taxes and spends 50% of its sales dollar on materials. What
percentage reduction in material costs for XXXX.com to achieve an increase of 5% in sales?
A. 1%
B. 2.5%
C. 5%
D. 7.5%
E. 10%
Answer: A
2. Which of the following statements regarding the process of reviewing supplier samples and/or
demonstrations with user departments and functional departments such as quality, engineering, research,
and administration, are FALSE?
A. It increases the amount of time involved in making a buying decision.
B. It is an example of purchasing's role as a service function within the organization.
C. It reduces purchased prices by allowing purchasing to make the final buying decision.
D. It leads to improved quality because the supplier will have a better understanding of user requirements.
Answer: C
3. In which of the following countries outside of the United States do U.S. patentees enjoy protection
against infringement?
A. In countries that have full diplomatic relations with the United States.
B. In countries that are signatories to patent conventions only.
C. In European Union member counties only.
D. In GATT member countries only.
E. None of the above.
Answer: B
4. XXXX.com has a contract with Road Haulers, Ltd. to dispose of toxic material at a site in New Orleans.
However, Road Haulers, Ltd. decides to use a site in Dallasinstead. The site at Dallas is a cheaper but
disreputable source. Who has primary liability in this situation?


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A. XXXX.com.
B. Road Haulers, Ltd.
C. The site at New Orleans.
D. The site at Dallas.
Answer: A
5. Which of the following is the MOST important aspect of service contract administration?
A. Aggressive management of the contract.
B. Selection of the right source.
C. A fair and reasonable price.
D. A sound statement of work.
Answer: D
6. You work as a purchaser at XXXX.com. Your brother works as an engineer for a major supplier for
XXXX.com. Your brother asks you for input on a new product line that his company is developing. The
product is quite similar to one that XXXX.com currently buys from another company. Which of the
following is the PRIMARY ethical issue that arises in this situation?
A. Fraud
B. Bribery
C. Nepotism
D. Conflict of interest
Answer: D
7. From which of the following are prices requested from in the second step of two-step bidding?
A. All suppliers submitting acceptable technical proposals in the first step.
B. The three suppliers submitting the best proposals in the first step.
C. All suppliers qualified to submit proposals in the first step.
D. All suppliers submitting proposals in the first step.
Answer: A


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8. Which of the following is generally NOT included in the cost analysis process?
A. Semi-variable costs.
B. Overhead costs.
C. Indirect costs.
D. Sunk costs.
Answer: D
9. Which of the following is MOST likely to assure receipt of materials against the invoice from the
supplier?
A. The Receiving Department.
B. The Production Department.
C. The Purchasing Department.
D. The Accounts Payable Department.
Answer: D
10. You work as a buyer at XXXX.com. You place an online order containing only price, quantity, and
description. You do NOT have a written contract with the supplier. The parts fail inspection, and the
supplier claims it is under no obligation for the parts. What would be your FIRST line of action in this
situation?
A. Accept the parts and write a contract covering the supplier's obligations in future online transactions.
B. State that an implied warranty for merchantability is applicable to the parts.
C. Use a manual order system for all future orders with the supplier.
D. Accept the parts with no further comment.
Answer: B
11. Which of the following should the buyer FIRST do when a using department requests that the buyer
purchase a specific brand-name product?
A. Attempt to negotiate a lower price with the supplier of the brand-name product.
B. Attempt to persuade the user to furnish performance specifications.
C. Search for competitive suppliers that furnish similar products.


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D. Appeal the request to higher purchasing management.
Answer: B
12. At which of the following times does the purchased raw material physically enters purchased goods
inventory in a manufacturing stockless inventory program?
A. Never, since it becomes work in progress or goods shipped.
B. Five days before it is needed.
C. One day before it is needed.
D. At the time of delivery.
Answer: A
13. Which of the following would NOT be included in a commodity record?
A. Supplier financial performance.
B. A list of sources.
C. Price history.
D. Quantities.
Answer: A
14. In which of the following payment methods used in global sourcing, does the seller present only its
draft on the buyer to its bank for collection, while the shipping and other documents are sent directly to the
buyer?
A. Open account.
B. Sight draft collection.
C. Clean draft collection.
D. Confirmed letters of credit.
Answer: C
15. For its impact on which of the following should price variances of purchased materials be forecasted?
A. Cost of goods sold.
B. Inventory levels.


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C. Supplier ratings.
D. Carrying costs.
Answer: B
16. Which of the following is NOT a goal of direct release systems?
A. Improved usage forecasting.
B. Reduced paperwork for purchasing.
C. Lower purchase order transaction costs.
D. Increased accountability of the selected supplier.
Answer: A
17. Which of the following is of LEAST consideration in the classification of needs when establishing
procurement plans for the purchase of products or services?
A. Specifications
B. Monetary value
C. Strategic or operational need
D. Repetitive or non-repetitive need
Answer: A
18. Which of the following is the first consideration in developing an advanced purchasing plan?
A. The designation of the office to be responsible for payments.
B. A discussion of the level of competition expected.
C. The criteria to be used to evaluate the selection.
D. The development of a negotiation strategy.
Answer: B
19. What should the purchasing department do when MIS requests a full use copy of a piece of software
for evaluation?
A. Have return shipping costs paid by the supplier
B. Execute an evaluation license.


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C. Issue a purchase order.
D. Confirm receipt.
Answer: B
20. Suppose XXXX.com has a 5% profit margin, one dollar of savings in purchases will equal what
amount of additional sales for XXXX.com?
A. $ 5
B. $ 10
C. $ 15
D. $ 20
E. $ 25
Answer: D
21. Which of the following provides the MOST difficulty in analyzing proposals for cost reimbursable
service contracts?
A. Material costs.
B. Direct labor costs.
C. Supervisory costs.
D. Transportation costs.
Answer: C
22. According to which of the following will the type of evaluation required to determine a supplier's
capability vary?
A. The nature of the purchase to be made only.
B. The dollar value of the purchase to be made only
C. Both the nature of the purchase to be made and the dollar value of the purchase to be made.
D. None of the above.
Answer: C
23. Which of the following is the LEAST desirable contract dispute resolution option?


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A. Renegotiation.
B. Compromise.
C. Reformation.
D. Litigation.
Answer: D
24. Which of the following statements is FALSE regarding a purchase order contract that includes the
term "C.I.F"?
A. B. The title transfers to the buyer on receipt of goods.
B. The cost of transportation is included in the price.
C. The seller makes all arrangements for shipment.
D. The shipment is insured against loss or damage.
Answer: A
25. Which of the following is the LEAST useful in evaluating a supplier's financial position?
A. Market forecasts.
B. Current balance sheet.
C. Dun & Bradstreet reports.
D. Monthly income statements.
Answer: A
26. Which of the following contracts rewards performance above a predetermined level by adding a
percentage to price?
A. Futures
B. Blanket
C. Bilateral
D. Incentive
Answer: D
27. What does an implied warranty of merchantability mean?


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A. Goods supplied will be free of apparent or hidden material defects.
B. Goods supplied will be of a quality comparable to that generally acceptable in the trade.
C. Goods supplied will be contained, packaged, and labeled as requested by the buyer.
D. Goods supplied will be in conformance to standards and specifications provided by the buyer.
Answer: B
28. XXXX.com has a contract with Waltons for the purchase of goods. The goods go missing in transit.
What determines who held title to the goods when they were lost?
A. The CISG term.
B. The F.O.B. term.
C. The freight payment terms.
D. The course of the transaction.
Answer: B
29. Which of the following would be LEAST appropriate when sourcing a part presently made in-house?
A. Soliciting manufacturing's approval to ensure future cooperation.
B. Developing a good understanding of present true internal costs.
C. Obtaining accurate specifications for the item to be purchased.
D. Developing a list of potential sources from which to solicit.
Answer: A
30. On which of the following contract provisions should a buyer insist to ensure that a supplier will meet
engineering specifications for a product?
A. An arbitration clause.
B. An acceptance test plan.
C. The indexing of price to inspection costs.
D. Discounts based on total purchases over a period of time.
Answer: B
31. Which of the following is the MOST important reason for a buyer to obtain legal review of RFQs


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involving prospective contracts for the performance of services such as construction and maintenance?
A. To avoid antitrust implications.
B. To avoid potential bankruptcy proceedings.
C. To include implied warranty rights favorable to the buyer.
D. To protect the buyer, because the Uniform Commercial Code does not apply to such contracts.
Answer: D
32. Which of the following requires the purchaser to assume high inspection costs?
A. Method-of-manufacture specifications.
B. Supplier grade specifications.
C. Brand name.
D. Trade name.
Answer: A
33. Which of the following terms BEST describes a situation in which a buyer directly or indirectly benefits
from his/her position or connections as an employee, or from the sale, purchase, or other activity of the
company?
A. Conflict of interest.
B. Mutual assent.
C. Subrogation.
D. Reciprocity.
Answer: A
34. Which of the following best describes a policy that limits the amount a senior buyer can spend on a
single purchase order?
A. Limits of authority.
B. Purchasing management control.
C. Accounting requisition control policy.
D. The checking of large-dollar requisitions for proper authority.
Answer: A


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