1. Items for which prices are comparatively low, and the cost of price reduction efforts may exceed any price savings realized, are called:
a. sensitive commodities.
b. raw materials.
c. special items.
d. standard production items.
e. MRO items
2. If the buyer wants to motivate the seller to manage total costs, the best type of contract is:
a. firm-fixed-price (FFP).
b. cost-plus-incentive-fee (CPIF)
c. firm-fixed-price plus incentive fee (FFPIF).
d. cost-plus-fixed-fee (CPFF).
e. cost-no-fee (CNF).
3. In the event the bidder does not make proper payment to its suppliers, the bond that protects the buyer against liens that might be granted to these suppliers, is called a:
a. performance bond.
b. surety bond.
c. bid bond
d. payment bond.
e. lien bond
4. The market approach to pricing:
a. means prices are set to cover direct costs, contribute to indirect, and attain aprofit.
b. is the only defensible pricing mechanism for ethical companies to use.
c. implies that prices are set based on what the market will bear.
d. means that prices are adjusted regularly to ensure that the selling organizationrecoups all its market costs.
e. implies that market analysis is the only technique that should be employed tonegotiate prices
5. The prime function of an organized commodity exchange is to furnish an established marketplace where:
a. the forcesof supply and demand operate freely.
b. commodity prices can be controlled.
c.sellers of the same commodity can come together to set prices.
d. products that aredifficult to grade can be traded.
e. there are only a limited number of buyers andsellers
6. A fair price:
a. is based on market conditions, and cost structure has no bearing on thedetermination of a fair price.
b. is the lowest price that ensures a continuous supply of the proper quality whereand when needed and at which the supplier makes a reasonable profit.
c. is based on the cost to produce an item or service without consideration for thesupplier’s profit margin.
d. is an amount arrived at through negotiations where the seller’s price is a startingpoint..
e. is when all sellers of equal goods or services receive the same per unit price
7. A cash discount allows:
a. the seller to secure prompt payment, but has no benefits for the buyer.
b. the buyer to pay a lower price per unit, but has no benefits for the seller.
c. the seller to secure prompt payment, and the buyer to pay a lower price per unit.
d. the seller to demand payment in cash on demand (C.O.D.) upon receipt ofgoods.
e. the buyer to always calculate the discount based on the delivery date.
8. Identical prices received from various sources should:
a. be expected when the specification is highly customized.
b. always make the buyer suspicious of collusion.
c. only draw attention if the buyer is dissatisfied with the price quoted.
d. draw attention if the specification is complex or detailed.
e. result in the buyer taking legal action against all bidders.
9. Forward buying:
a.offsets transactions to protect against price and exchange risks
b. involves no risk for the buying organization.
c. involves purchasing for known or estimated near-term requirements.
d. is the same as speculation.
e. seeks to take advantage of price movements.
10. Most direct costs are:
a. variable costs.
b. overhead costs.
c. general and administrative costs.
d. semivariable costs.
e. fixed costs
11. Target pricing may result in companywide cost reductions in:
a. design to cost.
b. manufacture to cost.
c. purchase to cost.
d. a and b.
e. a, b, and c.
12. An externally focused process of analyzing costs in terms of the overall value chain is called:
a. strategic cost management.
b. supply chain management.
c. total cost management.
d. profit leverage effect.
e. activity based costing
13. Activity based costing attempts to:
a. correct the distortions built into product costing by the way thatdirect costs are allocated
b. correct the distortions built into product costing by the way thatthe learning curve is applied to direct labor costs.
c. turn indirect costs into direct costs by tracking the cost driversbehind indirect costs.
d. turn direct costs into indirect costs by tracking the cost driversbehind direct costs.
e. introduce a new way to allocate direct costs that moreaccurately captures labor and material usage
14. When estimating the costs of a manufacturing supplier:
a. material costs are difficult to estimate.
b. direct labor costs are the easiest costs to estimate.
c. equipment depreciation is typically the largest cost element in overhead.
d. prices of raw materials are not commonly accessible.
e. labor rates are typically uniform across different plant locations
15. When developing a negotiation strategy, the negotiator should assess the positions of strength of both (all) parties to:
a. decide if negotiation make sense
b. establish negotiation points
c. avoid setting unrealistic expectations
d. b and c
e. a, b and c
16. In portfolio analysis, the goal when purchasing leverage items is:
a. assure supply.
b. assure continuous supply at lowest total cost of ownership.
c. assure quality at expected levels.
d. minimize acquisition time and cost and price per unit.
e. reduce or eliminate customization
17. Target pricing:
a. starts with the supplier’s price, and works to determine the selling price of thebuying organization’s end product or service.
b. starts with the selling price of an organization’s end product minus theoperating profit to establish the target cost.
c. starts with the selling price of an organization’s end product minus actualmanufacturing, overhead, and materials costs to determine operating profit.
d. starts with the supplier’s price, and works to determine the supplier’s true coststructure.
e. starts with the buyer’s lowest reasonable price target, and works to anegotiated price agreed on by the buyer and the supplier
18. Although associated with a number of factors, the learning curve normally is most closely identified with the analysis of:
a. tooling costs.
b. profit rates
c. overhead costs.
d. direct labor costs.
e. direct material costs
19. In portfolio analysis, the goal when purchasing strategic goods or services is to:
a. assure quality at expected levels
b. assure continuous supply at lowest cost of ownership
c. minimize acquisition time and cost
d. minimize acquisition time and cost and price per unit
e. reduce or eliminate customization
20. Sources of sustainable competitive advantage include:
a. product differentiation (where customers have low price sensitivity),
b. low cost (where customers have high price sensitivity),
c. a combination of product differentiation and cost-leadership.
d. a, b and c
e. none of the above