CIPS L4m3 Commercial Contracting · Free Practice Question Medium
Question 9
Which of the following contracts would be best suited to a variable pricing arrangement?
A contract for road building estimated to take five years to complete
A contract for window cleaning during the next three months
A contract for the supply of lubricating oil for immediate delivery
A contract for the supply of 100 printing machines to be delivered next month
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A
A contract for the supply of lubricating oil for immediate delivery
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B
A contract for the supply of 100 printing machines to be delivered next month
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C
A contract for road building estimated to take five years to complete
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D
A contract for window cleaning during the next three months
Reveal correct answer
Correct answer: C
Explanation
Variable pricing is suitable to situations when the cost of certain elements of the product fluctuate unpredictably. For road building, the major input includes asphalts, sand, other building materials and labour. Asphalt is a commodity and therefore fluctuates regularly. Furthermore, 5 years are long period, then variable pricing is the most appropriate method to achieve value for money and control budget.
A contract for window cleaning during the next three months is a short-term service contract, fixed price is the most suitable method.
A contract for the supply of lubricating oil for immediate delivery is an one-off contract, only fixed price is applicable.
A contract for the supply of 100 printing machines to be delivered next month is also an one-off contract.
Reference: CIPS study guide page 178-183/ New syllabus 2024
LO 3, AC 3.3
Discussion
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