SCM CH 11

A _____ is an analytical tool that identifies the primary external forces that are causing prices to either increase or decrease. a. market analysis b. total cost analysis c. cost analysis d. make-buy analysis e. target price analysis

A

​In the _____, the supplier analyzes the market to find the combination of price per unit and quantity of sales that maximizes its profit on the assumption that (1) lowering the price per unit will result in more units being sold, and (2) greater volume will spread the indirect cost over more units. a. price volume model b. sole sourcing model c. market-share model d. market skimming model e. promotional pricing model

A

All of the following are examples of broad total cost of ownership categories except _____. a. purchase price b. acquisition costs c. sales, general, and administrative overhead costs d. usage costs e. end-of-life costs

C

​​_____ = (Quality + Technology + Service + Cycle Time) ÷ Price. a. Cost b. Efficiency c. ​Value d. ​Total cost e. ​Target cost

C

T/F: A cost-based approach to determining price is clearly appropriate for all purchased items.

false

T/F: Although a quantity discount has a positive effect on the purchase price, a buyer need not be cautious about the net impact on the total cost of an item.

false

T/F: Building a TCO model is an easy task.

false

T/F: Economic conditions seldom determine whether a market is favorable to the seller or to the purchaser.

false

T/F: Examples of monopolies in the United States include the steel, automobile, and appliance industries

false

T/F: How well suppliers purchase their goods and services has no direct impact on purchase price levels.

false

T/F: If total costs are less than target costs, the design must change or costs must be reduced.

false

T/F: 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.

true

T/F: The difference between the supplier's price and the target cost becomes the strategic cost-reduction objective.

true

T/F: The main risk in target and cost-based pricing concerns volume variability.

true

In should-cost modeling, the _____ provides a high level view of the supply chain, and then the supplier's primary cost elements are broken down into material, labor, overhead, transportation freight, inventory cost, maintenance costs, and others. a. PPI b. value stream map c. target price d. product specification e. None of the above.

B

In the _____, pricing is based on the assumption that long-run profitability depends on the market share obtained by the supplier. a. price volume model b. market-share model c. open market model d. target pricing model e. ​market skimming model

B

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. a. rate-of-return pricing model b. margin pricing model c. market-share model d. competition pricing model e. target costing model

B

In the _____, the supplier simply takes its estimate of costs and adds a markup percentage to obtain the desired profit. a. margin pricing model b. cost markup pricing model c. total cost analysis model d. penetration pricing model e. revenue pricing model

B

T/F: A cost-based approach to supplier pricing is feasible when the seller contributes high added value to an item through direct or indirect labor and specialized expertise.

true

T/F: Identification of all costs provides the basis for establishing joint improvement targets.

true

T/F: In many cases, the price charged by a seller may have little or no relationship to actual costs

true

T/F: In setting target prices and target costs, the new-product development team should bear in mind the cardinal rule of target costing: the target cost can never be violated.

true

T/F: Price analysis focuses simply on a seller's price with little or no consideration given to the actual cost of production.

true

T/F: Purchasers impact price at the time they set the specifications for the product or service.

true

T/F: Some sellers rely on a detailed analysis of internal cost structures to establish price, whereas others simply price at a level comparable to the competition.

true

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

true

T/F: The market-share model is also known as the penetration pricing model and is an aggressive pricing approach for efficient producers because price is a direct function of cost.

true

T/F: Under traditional pricing approaches, product cost + profit = selling price.

true

T/F: When supply exceeds demand, a buyer's market exists, and prices generally move downward.

true

T/F: With the increased amount of outsourcing occurring in every global company today, the majority of the cost of goods sold is driven by suppliers, which are outside the four walls of an organization.

true

_____ refers to the process of comparing supplier prices against external price benchmarks, without direct knowledge of the supplier's costs. a. Cost analysis b. Make-buy analysis c. Target costing d. Price analysis e. Total cost analysis

D

​In TCO, _____ is the amount paid to the supplier for the product, service, or capital equipment. a. acquisition cost b. usage cost c. end-of-life cost d. purchase price e. opportunity cost

D

T/F: Most large firms base purchase decisions and evaluation suppliers on only the cost elements of unit price, transportation, and tooling.

false

T/F: Strategic cost management approaches do not vary according to the stage of the product life cycle.

false

T/F: Target pricing is an innovative approach used in the final stages of the product life cycle to establish a contract price between a buyer and a seller.

false

T/F: When demand exceeds supply, a buyer's market exists, and prices generally decrease.

false

T/F:A major benefit of multiple sourcing is a lower price that results from the higher volumes offered to a supplier

false

Which of the following is not an item or product that is an appropriate candidate for a cost-based pricing approach? a. An item in which the seller contributes high added value through direct or indirect labor and specialized expertise. b. A complex item customized to specific requirements. c. A product requiring a conversion from raw material through value-added designs. d. A product requiring supplier-provided design and engineering support. e. Commodity-like items.

E

In the _____, prices are set to achieve a high profit on each unit by selling to supply managers who are willing to pay a higher price because of a lack of supply management sophistication or who are willing to pay for products or services of perceived higher value. a. market skimming model b. revenue pricing model c. promotional pricing model d. price volume model e. competition pricing model

A

In the _____, suppliers are typically concerned about capacity utilization, covering fixed cost, and retaining skilled labor during market slowdowns, when they are willing to reduce their prices until market conditions change. a. revenue pricing model b. market skimming model c. penetration pricing model d. market-share model e. competition pricing model

A

Which of the following is not one of the common assumptions typically used in break-even analysis? a. Fixed costs are never considered. b. Fixed costs remain constant over the period and volumes considered. c. Variable costs fluctuate in a linear fashion. d. Revenues vary directly with volume. e. Break-even analysis considers total costs rather than average costs.

A

In TCO, _____ includes all costs associated with bringing the product, service, or capital equipment to the customer's location. a. purchase price b. opportunity costs c. acquisition costs d. usage costs e. end of life costs

C

The emphasis of the _____ is on obtaining sufficient current revenue to pay for operating cost rather than on profit. a. price volume model b. promotional pricing model c. revenue pricing model d. market skimming model e. competition pricing model

C

Which of the following is not one of the questions that should be asked when analyzing a seller's pricing strategy? a. Does the seller have a long-term pricing strategy, or is it short-term in nature? b. Is the seller a price leader or a price follower? c. How many employees does the seller's plant employ? d. Is the seller attempting to establish entry barriers to other competitors by establishing a low price initially, then preparing to raise prices later in the future? e. Is the seller using a cost-based pricing approach or a market-based pricing approach?

C

​_____ 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. a. Make-buy analysis b. TCO c. Break-even analysis d. Market-share pricing e. None of the above.

C

All of the following are opportunities for supplier cost reductions except _____. a. process capability b. plant utilization c. learning-curve effect d. ability to vote out the supplier's labor union e. management capability

D

In a/an _____ market structure, there exist identical products with minimal barriers for new suppliers to enter the market, and price is solely a function of the forces of supply and demand. a. monopolistic b. oligopolistic c. communistic d. perfect competition e. Price is never solely a function of supply and demand, regardless of market structure.

D

In should-cost modeling, _____ include those components the company has direct control or influence over. a. direct costs b. assumption variables c. variable costs d. decision variables e. commodity prices

D

In the _____, the desired profit is added to the estimated costs. a. penetration pricing model b. revenue pricing model c. margin pricing model d. rate-of-return pricing model e. ​TCO model

D

The _____ presents pricing for individual products and services that is set to enhance the sales of the overall product line rather than to ensure the profitability of each product. a. price volume model b. competition pricing model c. market skimming model d. promotional pricing model e. revenue pricing model

D

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

D

A/An _____ is defined as the cost of the next best alternative. a. operating cost b. purchase price c. net present value d. usage cost e. opportunity cost

E

In TCO for a product, _____ include(s) all costs associated with converting the purchased part/material into the finished product and supporting it through its usable life. a. purchase price b. acquisition costs c. end of life costs d. opportunity costs e. usage costs

E

In should-cost modeling, _____ refers to the integrity and transparency of the cost model created. a. direct cost b. value stream maps c. make-or-buy analysis d. fixed cost e. auditability

E

T/F: 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.

false

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. a. reverse price analysis b. TCO analysis c. penetration pricing d. using the PPI e. competition pricing

A

In TCO for a service, _____ include all costs associated with the performance of the service that are not included in the purchase price. a. invoice costs b. usage costs c. acquisition costs d. end of life costsend of life costs e. interest costs

B

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. a. direct costs b. assumption variables c. overhead costs d. transportation modes e. decision variables

B

Which of the following is not one of the categories of products in the strategic cost management matrix? a. Commodities. b. One-time buys. c. Critical products. d. Unique products. e. Generics.

B

With _____, a product's allowable cost is strictly a function of what a market segment is willing to pay less the profit goals for the product. a. penetration pricing b. target pricing c. market-share pricing d. should-cost modeling e. revenue pricing

B

_____ is defined as the present value of all costs associated with a product, service, or capital equipment that are incurred over its expected life. a. Cash flow analysis b. ​Total cost of ownership c. Make-buy analysis d. Revenue pricing e. Competition pricing

B

​_____ is the process of analyzing each individual cost element (i.e., material, labor hours and rates, overhead, general and administrative costs, and profit) that together add up to the final price. a. Price analysis b. Cost analysis c. Cost analysis d. Total cost analysis e. Make-buy analysis

B

T/F: ​In general, low-value generics in which a competitive market with many potential suppliers exists should emphasize total delivered price.

true

T/F: A seller's cost structure affects price because, in the long run, the seller must price at a level that covers all variable costs of production, contributes to some portion of fixed costs, and contributes to some level of profit

true

T/F: 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.

true

T/F: At the highest levels of the organization, top management uses break-even analysis as a strategic planning tool.

true

T/F: Break-even analysis includes both cost and revenue data for an item to identify the point where revenue equals costs, and the expected profit or loss at different production volumes.

true

​In TCO for capital equipment, _____ are all costs associated with operating the equipment during its life. a. usage costs b. end of life costs c. opportunity costs d. acquisition costs e. training costs

A

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. a. revenue pricing model b. promotional pricing model c. revenue pricing model d. cash discount model e. market-share model

E

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

false

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

false

T/F: The price paid for purchased products and services has no direct impact on the end customer's perception of value provided by the organization.

false

T/F: The value of money spent any time in the future does not depend on the organization's cost of capital

false

T/F: Traditional pricing practices have supported cooperative efforts to make design, product, and process improvements with suppliers.

false

T/F: Under penetration pricing, using final price as a basis, the product is disaggregated into major subsystems, each of which has its own target cost.

false

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

false

Which of the following is not one of the important factors to consider when building a TCO model? a. Focus on the small and easily measurable costs first. b. Building a TCO can be a costly and time-intensive activity. c. Work in a team. d. Make sure to obtain senior management buy-in before embarking on a full-fledged TCO. e. When considering global sourcing, consider all of the relevant labor, quality, logistics, and import costs associated with the total supply chain.

A

​_____ include(s) all costs incurred when a product, service, or capital equipment reaches the end of its useful life, net of amounts received from the sale of remaining product or the equipment (salvage value). a. Net present value costs b. Usage costs c. Purchase price d. End-of-life costs e. Opportunity costs

D

The _____ is an approach to estimating the different components that make up the supplier's per unit price per unit of product or service, i.e., what the product or service should cost in a theoretical world. a. market skimming model b. make-buy analysis c. competition pricing model d. rate-of-return model e. Should-cost model

E

The _____ strategy is based on determining the highest price that can be offered to the supply manager that will still be lower than the price offered by competitors. a. penetration pricing model b. market-share model c. cash discount d. revenue pricing model e. competition pricing model

E

_____ applies the price/cost equation across multiple processes that span two or more organizations across a supply chain. a. Make-buy analysis b. Price analysis c. Cost analysis d. Target costing e. Total cost analysis

E

​In the framework for strategic cost management, _____ are high-value products or services and can be sourced through traditional bidding approaches that require price analysis using market forces to do the work and identify what is a competitive price. a. critical products b. unique products c. custom-made products d. generics e. commodities

E

​_____ indicates whether a seller can lower its cost as a result of the repetitive production of an item. a. Process capability analysis b. Market analysis c. Price analysis d. Break-even analysis e. Learning-curve analysis

E