OPSM 4810 - CH10

A fair price:

is the lowest price that ensures a continuous supply of the proper quality where and when needed and at which the supplier makes a reasonable profit.

Most direct costs are:

variable costs

Canceling a contract for a technicality when market prices are falling is considered a perfectly acceptable and ethical practice.

FALSE

Competitive bidding, in general, is the least efficient means of obtaining a fair price for items bought.

FALSE

For goods bought on a non-recurring basis, the contract may provide for a reduction in price should the buyer ever again purchase the item.

FALSE

Online reverse auctions are useful means of price determination for special items.

FALSE

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

payment bond

The prime function of an organized commodity exchange is to furnish an established marketplace where:

the forces of supply and demand operate freely.

A cash discount allows:

the seller to secure prompt payment, and the buyer to pay a lower price per unit.

If the buyer wants to motivate the seller to manage total costs, the best type of contract is:

cost-plus-incentive-fee (CPIF)

Forward buying:

involves purchasing for known or estimated near-term requirements

Identical prices received from various sources should:

draw attention if the specification is complex or detailed.

The market approach to pricing:

implies that prices are set based on what the market will bear.

Items for which prices are comparatively low, and the cost of price reduction efforts may exceed any price savings realized, are called:

MRO items.

A cash discount of 2/10, N/30 (2 percent cash discount if payment is made in 10 days, with the gross amount due in 30 days) is the equivalent of approximately a 36 percent interest rate.

TRUE

An escalator clause provides for an increase, as well as a decrease, in price if costs change.

TRUE

Governments play a role in establishing prices by establishing production and import quotas and by regulating the ways that buyers and sellers are allowed to behave in agreeing on prices.

TRUE

One justification for a quantity discount is that the buyer should not pay more than the actual cost of packing, crating, and transportation.

TRUE

The Robinson-Patman and Sherman Antitrust Acts are primarily designed to prevent the stronger party from imposing too onerous conditions on the weaker one and preventing collusion so that competition will be maintained. .

TRUE

To be fair, the basis and terms of cancellation should be agreed on in advance and made part of the terms and conditions of the purchase order.

TRUE