Question 1

Economic conditions seldom determine whether a market is favorable to the seller or to the purchaser.

Accepted Answer

A) True 
 B)False

Question 2

The cost of a new product is no longer an outcome of the product design process; rather, it is an input to the process.

Accepted Answer

A) True 
 B)False

Question 3

Price analysis focuses simply on a seller's price with little or no consideration given to the actual cost of production.

Accepted Answer

A) True 
 B)False

Question 4

The major benefits from cost-reduction efforts occur when supply management is not involved early in the new-product/service development cycle.

Accepted Answer

A) True 
 B)False

Question 5

In TCO for a product, _____ include(s) all costs associated with converting the purchased part or material into the finished product and supporting it through its usable life.

Accepted Answer

A) purchase price 
B) acquisition costs 
C) end of life costs 
D) opportunity costs 
E) usage costs

Question 6

In should-cost modeling, _____ are any components not under the direct control of the buying or supplying company but those that have a significant influence on the outcome being modeled.

Accepted Answer

A) direct costs 
B) assumption variables 
C) overhead costs 
D) transportation modes 
E) decision variables

Question 7

The opportunity cost of taking the supplier's cash discount is almost always higher than the opportunity cost of not taking the cash discount.

Accepted Answer

A) True 
 B)False

Question 8

A _____ is an analytical tool that identifies the primary external forces that are causing prices to either increase or decrease.

Accepted Answer

A) market analysis 
B) total cost analysis 
C) cost analysis 
D) make-buy analysis 
E) target price analysis

Question 9

As a product reaches its end of life, supply management cannot ignore the potential value of environmental initiatives to remanufacture, recycle, or refurbish products that are becoming obsolete.

Accepted Answer

A) True 
 B)False

Question 10

In the _____, the seller is willing to take a lower price because of the potential mass market appeal of the product, resulting in substantially higher sales volumes.

Accepted Answer

A) revenue pricing model. 
B) promotional pricing model 
C) revenue pricing model 
D) cash discount model 
E) market-share model

Question 11

In TCO, _____ includes all costs associated with bringing the product, service, or capital equipment to the customer's location.

Accepted Answer

A) purchase price 
B) opportunity costs 
C) acquisition costs 
D) usage costs 
E) end of life costs

Question 12

A should-cost model can lead the procurement manager to better understand elements of overhead, mark-ups on non-value-added costs, and other components that can undermine price inflation.

Accepted Answer

A) True 
 B)False

Question 13

In the _____, the supplier establishes a price that will provide a profit margin that is a predetermined percentage of the quoted price, i.e., not a percentage of cost.

Accepted Answer

A) rate-of-return pricing model 
B) margin pricing model 
C) market-share model 
D) competition pricing model 
E) target costing model

Question 14

The Consumer Price Index (CPI) tracks material price movements from quarter to quarter, is scaled to a base year (1988), and tracks the percentage increase in material commodity prices based on a sample of industrial purchasers.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements regarding cost-savings sharing is false?

Accepted Answer

A) Cost-sharing approaches require joint identification of the full cost to produce an item. 
B) Profit is a function of the productive investment committed to the purchased item and a supplier's asset return requirements. 
C) The cost-based approach provides a supplier with incentives to pursue continuous performance improvement to realize shared cost savings and invest in productive assets. 
D) Profit is a direct function of cost. 
E) In the traditional market-based pricing approach, one party (usually the purchaser) seeks to capture all cost savings resulting from a supplier's improvement effort.

Question 16

Building a TCO model is an easy task.

Accepted Answer

A) True 
 B)False

Question 17

In TCO for a service, _____ include all costs associated with the performance of the service that are not included in the purchase price.

Accepted Answer

A) invoice costs 
B) usage costs 
C) acquisition costs 
D) end of life costs 
E) interest costs

Question 18

In _____, a purchaser may have to use internal engineering estimates about what it costs to produce an item, rely on historical experience and judgment to estimate costs, or review public financial documents to identify key cost data about the seller.

Accepted Answer

A) reverse price analysis 
B) TCO analysis 
C) penetration pricing 
D) using the PPI 
E) competition pricing

Question 19

Using a traditional pricing approach, the selling price - profit = the allowable product cost.

Accepted Answer

A) True 
 B)False

Question 20

_____ includes both cost and revenue data for an item to identify the point where revenue equals cost, and the expected profit or loss at different production volumes.

Accepted Answer

A) Make-buy analysis 
B) TCO 
C) Break-even analysis 
D) Market-share pricing 
E) None of these answers.

Exam 11: Strategic Cost Management

Economic conditions seldom determine whether a market is favorable to the seller or to the purchaser.

The cost of a new product is no longer an outcome of the product design process; rather, it is an input to the process.

Price analysis focuses simply on a seller's price with little or no consideration given to the actual cost of production.

The major benefits from cost-reduction efforts occur when supply management is not involved early in the new-product/service development cycle.

In TCO for a product, _____ include(s) all costs associated with converting the purchased part or material into the finished product and supporting it through its usable life.

In should-cost modeling, _____ are any components not under the direct control of the buying or supplying company but those that have a significant influence on the outcome being modeled.

The opportunity cost of taking the supplier's cash discount is almost always higher than the opportunity cost of not taking the cash discount.

A _____ is an analytical tool that identifies the primary external forces that are causing prices to either increase or decrease.

As a product reaches its end of life, supply management cannot ignore the potential value of environmental initiatives to remanufacture, recycle, or refurbish products that are becoming obsolete.

In the _____, the seller is willing to take a lower price because of the potential mass market appeal of the product, resulting in substantially higher sales volumes.

In TCO, _____ includes all costs associated with bringing the product, service, or capital equipment to the customer's location.

A should-cost model can lead the procurement manager to better understand elements of overhead, mark-ups on non-value-added costs, and other components that can undermine price inflation.

In the _____, the supplier establishes a price that will provide a profit margin that is a predetermined percentage of the quoted price, i.e., not a percentage of cost.

The Consumer Price Index (CPI) tracks material price movements from quarter to quarter, is scaled to a base year (1988), and tracks the percentage increase in material commodity prices based on a sample of industrial purchasers.

Which of the following statements regarding cost-savings sharing is false?

Building a TCO model is an easy task.

In TCO for a service, _____ include all costs associated with the performance of the service that are not included in the purchase price.

In _____, a purchaser may have to use internal engineering estimates about what it costs to produce an item, rely on historical experience and judgment to estimate costs, or review public financial documents to identify key cost data about the seller.

Using a traditional pricing approach, the selling price - profit = the allowable product cost.

_____ includes both cost and revenue data for an item to identify the point where revenue equals cost, and the expected profit or loss at different production volumes.