Chapter 10

Hedging is a way to ________. A) attempt to minimize commodity price and currency exchange risks B) ensure lowest price C) minimize collusive bidding D) set trade discounts E) evaluate quantity discounts

A

Labor and material costs are typically ________. A) direct costs B) semivariable costs C) fixed costs D) indirect costs E) semivariable costs and fixed costs

A

When using competitive bidding to determine price, the purchaser should ensure that the bidders are ________. A) qualified to make the item or service in accordance with the buyer's specifications, able to deliver it by the desired date, sufficiently reliable, and numerous enough to ensure a truly competitive price B) qualified to make the item or service in accordance with the buyer's specifications, able to deliver it by the desired date, and sufficiently reliable C) qualified to make the item or service in accordance with the buyer's specifications and able to deliver it by the desired date D) sufficiently reliable and numerous enough to ensure a truly competitive price E) qualified to make the item or service in accordance with the buyer's specifications

A

A prime function of an organized commodity exchange is to furnish an established marketplace where ________. A) commodity prices can be controlled B) the forces of supply and demand operate freely C) sellers of the same commodity can come together to set prices D) products that are difficult to grade can be traded E) there are only a limited number of buyers and sellers

B

Costs incurred in the operation of a production plant or process or service organization, but normally cannot be related directly to any given unit of production or service provided, are called ________. A) direct costs B) indirect costs C) variable costs D) semivariable costs E) fixed costs

B

The fairest possible means of treating all suppliers alike in a competitive bidding situation is to ________. A) allow all bidders to submit their bids online B) establish a policy of firm bidding C) allow for negotiation after all bids are received D) provide prospective suppliers target cost E) none of the choices are correct

B

The lowest price that ensures a continuous supply of the proper quality where and when needed and allows the supplier to make a reasonable profit is commonly known as ________. A) a market price B) a fair price C) a cost-based price D) a buyer's market price E) a seller's market price

B

If identical bids are received, the buyer might choose to ________. A) reject all bids B) initiate an investigation C) negotiate with one or more suppliers D) reject all bids and negotiate with one or more suppliers E) reject all bids and initiate an investigation

D

If the delivery date is several months away and there is substantial chance of price escalation, a supplier may feel that there is far too much risk of loss to agree to sell under a ________. A) cost-plus-fixed-fee (CPFF) B) cost-plus-incentive-fee (CPIF) C) firm-fixed-price plus incentive fee (FFPIF) D) firm-fixed-price (FFP) E) cost-no-fee (CNF)

D

Items for which prices are comparatively low and the cost of price reduction efforts may exceed any price savings realized are ________. A) parts, components, and packaging B) raw materials C) services D) maintenance, repair, and operating (MRO) supplies E) capital assets

D

The lowest bid may not receive the order if ________. A) the buyer discovers the lowest bidder is not preferred by the user or specifier B) the lowest bid is higher than the buyer believes justifiable C) there is reason to believe the bidders colluded D) the lowest bid is higher than the buyer believes justifiable or there is reason to believe the bidders colluded E) the buyer discovers the lowest bidder is not preferred by the user or specifier, the lowest bid is higher than the buyer believes justifiable, or there is reason to believe the bidders colluded

D

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 demand payment in cash on demand (C.O.D.) upon receipt of goods D) the buyer to always calculate the discount based on the delivery date E) the seller to secure prompt payment and the buyer to pay a lower price per unit

E

A payment bond guarantees that if the bidder wins the bid it will accept the purchase contract.

False

Online reverse auctions are useful means of price determination for customized items

False

The purchasing manager indexes (PMIs) are lagging economic indicators derived from monthly surveys of purchasing managers about forecasted company conditions.

False

Accepting a price discount for ordering larger quantities leads to increased levels of anticipation inventory.

True

An escalator clause provides for either an increase or decrease in price if costs change.

True

An exception to firm bidding allows the buyer and bidders the flexibility to clarify and define specifications and prices after the initial bids are received, and then bidders submit best-and-final-offers (BAFOs)

True

Canceling a contract for a technicality when market prices are falling is considered an unacceptable and unethical practice.

True

Direct costs can be specifically and accurately assigned to a given unit of production or a specific identifiable task performed by a service provider.

True

Farmers turn to marketing and production contracts when they perceive the efficacy of spot markets to be inadequate in handling their risks, and processors turn to contracts as a way to encourage farmers to produce specific products at desired times.

True

Fixed costs generally remain the same regardless of the number of units produced.

True

Government data and commodity exchanges can be useful sources for price trends

True

Governments can play an active role in establishing prices or regulating how buyers and sellers are allowed to behave in agreeing on prices.

True

In general, competitive bidding is the most efficient means of obtaining a fair price for items bought.

True

Prices may not be directly related to costs in the market approach

True

The process for bidding in the public sector is generally similar to the private sector, although there are a few important differences.

True

A cash discount of 1/15, N/30 (1 percent cash discount if payment is made in 15 days, with the gross amount due in 30 days) is the equivalent of what approximate interest rate? A) 10 percent B) 18 percent C) 24 percent D) 32 percent E) 40 percent

C

The cost approach to pricing ________. A) is the favored approach to pricing mechanism for most suppliers B) means prices are adjusted to ensure the selling organization recoups all costs C) means prices are set to cover direct costs, contribute to indirect costs, and provide a profit D) implies that prices are set based on the cost the market will bear E) implies that cost analysis is the only technique to be used to negotiate prices

C

This type of bond guarantees that work will be done according to specifications, in the time specified, and if another supplier does rework or completes the order, purchasing is indemnified for these extra costs ________. A) bid bond B) lien bond C) performance bond D) payment bond E) surety bond

C