CIPS Exam L4M3 Topic 8 Question 37 Discussion

Actual exam question for CIPS's L4M3 exam

Question #: 37
Topic #: 8

[All L4M3 Questions]

Which of the following is always an advantage of using fixed price arrangement in a contract for buying organisation?

ABuyer can allocate budget with certainty

BBuyer can harness falling market price

CSupplier always receives a fixed margin

DSuitable for contracts that last 5 years or more

Show Suggested Answer

Suggested Answer: A

Advantages of using fixed pricing arrangement are as below:

- Budget/income certainty - prices are fixed up front and should not change

- The impact of changes to the supplier's cost base is not fed through to the purchaser. If costs diminish, the supplier will benefit from this, and if costs rise, the purchaser will benefit

LO 3, AC 3.3

by Marjory at Jun 24, 2024, 03:27 PM

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Tanja

4 months ago

This question is making me hungry. A fixed price on some takeout would be amazing right about now.

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Micaela

2 months ago

C) Supplier always receives a fixed margin

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Willis

2 months ago

B) Buyer can harness falling market price

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Beatriz

3 months ago

A) Buyer can allocate budget with certainty

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Clarence

3 months ago

C) Supplier always receives a fixed margin

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Aron

3 months ago

B) Buyer can harness falling market price

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Troy

3 months ago

A) Buyer can allocate budget with certainty

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Ngoc

4 months ago

That's true, but it also provides stability and reduces risk for the buyer.

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Emogene

4 months ago

I'm going with A. Budgeting with certainty is a huge plus, even if you miss out on some market price drops. Who needs that kind of stress?

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Dylan

4 months ago

D sounds good for long-term contracts, but I'm not sure it's always an advantage. Flexibility can be important too.

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Hillary

3 months ago

A) Buyer can allocate budget with certainty

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Toi

3 months ago

I agree, flexibility is important too. It depends on the specific situation.

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Lynelle

3 months ago

C) Supplier always receives a fixed margin

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Gilbert

3 months ago

B) Buyer can harness falling market price

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Willard

3 months ago

A) Buyer can allocate budget with certainty

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Krissy

3 months ago

D sounds good for long-term contracts, but flexibility is important too.

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Lenita

4 months ago

A) Buyer can allocate budget with certainty

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Elise

4 months ago

C is not quite right. Suppliers may still face cost fluctuations, so a fixed price doesn't necessarily mean a fixed margin for them.

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Lucy

4 months ago

B) Buyer can harness falling market price

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Lucy

4 months ago

A) Buyer can allocate budget with certainty

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Fidelia

4 months ago

But what about the fact that buyer can't harness falling market prices with fixed price arrangement?

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Mitsue

5 months ago

I agree with Xuan. It helps in financial planning and budgeting.

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Ilda

5 months ago

A fixed price arrangement definitely gives the buyer budget certainty. But it also limits their ability to take advantage of falling market prices. Hmm, a dilemma.

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Stefania

4 months ago

Yes, but it can be frustrating to miss out on potential cost savings when market prices drop.

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Gwenn

4 months ago

True, having budget certainty is important for planning purposes.

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Xuan

5 months ago

I think the advantage of using fixed price arrangement is that buyer can allocate budget with certainty.

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