CPM P&L Ownership & Cost Reduction 5

Question 1

A plant manager is benchmarking labor productivity. The best external benchmark source for a US manufacturing plant is typically:

Accepted Answer

Bureau of Labor Statistics (BLS) industry productivity indices

Answer

The BLS publishes industry-specific labor productivity indices that provide credible, statistically rigorous external benchmarks for US manufacturers.

Question 2

When a plant manager negotiates a long-term supply agreement with a price escalation clause tied to a commodity index, the primary financial risk being managed is:

Accepted Answer

Commodity price volatility in raw material costs

Answer

A commodity-linked escalation clause passes input price risk to the buyer or shares it transparently, managing the P&L impact of raw material price swings.

Question 3

A plant's return on assets (ROA) declined despite higher revenue. The most likely explanation is:

Accepted Answer

Asset base grew faster than net income due to a capital expansion

Answer

If assets increase proportionally more than net income—common during capital expansion—ROA (Net Income ÷ Total Assets) declines even as revenue grows.

Question 4

Which cost reduction technique analyzes the functions of a product or process to achieve required performance at the lowest cost?

Accepted Answer

Value engineering (VA/VE)

Answer

Value analysis/value engineering systematically examines what each product function costs versus what it is worth, identifying opportunities to deliver performance at lower cost.

Question 5

A plant manager reduces finished goods inventory by 20% through improved scheduling. The most direct P&L benefit is:

Accepted Answer

Reduced inventory carrying costs (storage, insurance, obsolescence) and improved cash flow

Answer

Lower inventory levels directly reduce carrying costs—warehouse space, insurance, risk of obsolescence, and the opportunity cost of capital tied up in stock.

(CPM) Certified Plant Manager Practice Test

(CPM) Certified Plant Manager Practice Test

CPM P&L Ownership & Cost Reduction 5