Mid-Term Exam
Operating Income =
Gross Profit - Operating Expenses
Return on Sales (ROS)
Net Income / Sales
Most basic commodities or COTS products and standard services are fairly priced based upon ___________________ and ____________________.
competition in the marketplace and price comparison
Price Analysis is the process of examining and evaluating a proposed price to determine if it is fair and reasonable without evaluating its separate_______________ and _______________.
cost elements proposed profit
This type of contract was used extensively by the U.S. Government during World War I but has since been made illegal for U.S. Government contracts:
cost-plus-a-percentage-of-cost (CPPC)
Material is quoted on a ________________ basis, typically at or near the time when it will actually be consumed.
point-of-receipt
In the article "Developing Cost Estimates For Proposals To The Government," it states: Individual labor rates in cost estimating will produce_________________. Average labor rates within labor classifications are_________________.
precise results more practical
Cost Overruns occur when the [ Select ] ["work has not changed, but it costs more than anticipated.", "parties change the work, adding to the cost of the project."] ; whereas Cost Growth occur when the [ Select ] ["work has not changed, but it costs more than anticipated.", "parties change the work, adding to the cost of the project."]
work has not changed, but it costs more than anticipated. parties change the work, adding to the cost of the project.
EBITDA =
Net Income - (Interest Expense + Tax Expense + Depreciation Expense + Amortization)
Gross Profit =
Revenue - Cost of Goods Sold
Price competition is generally considered to be one of the best bases for price analysis.
True
The Profit Factor Matrix, as developed by one of the authors of one of the magazine articles, essentially places variations of risk across the "x-axis" from "low" to "high" and places the variables for fee consideration on opposing "y-axes."
True
Profit is synonymous with profitability.
False
Life-Cycle Costing Method
Focus on the total cost of a system or service over its entire life cycle
Fixed-price contracts are the standard business pricing arrangement, with the simplest and most common being FFP.
True
Asset Turnover =
Sales / Average Total Assets
Return on Assets (ROA) =
Profit Margin x Asset Turnover
LPTA is based on a simple strategy:
The lowest price wins the deal
Statutory limits on contract Fee are applicable to experimental, developmental, or research work performed under a cost-plus-fixed-fee contract of ___________ of estimated contract cost and ________ of estimated contract cost for all other cost-plus-fixed-fee contracts.
15%, 10%
Analogy
Actual cost from a similar program with adjustments for differences
The 5 primary methods for preparing cost estimates are:
Analogy, Parametric Analysis, Weighted Average, Technical Consensus, Engineering Build-up
"Materials" in a time-and-materials (T&M) contract may include:
Applicable indirect costs Subcontractor Other direct costs Direct materials
Learning Curve Technique
As units produced doubles, the number of labor hours reduces by a constant rate
Days of Sales Outstanding (DSO) =
Average Net Accounts Receivable / (Net Sales/365 Days)
Contract Types or specific pricing arrangements balance the risk between contracting parties.
True
The first number in a sharing ratio or formula is the _______________ share and the 2nd number is the ________________share. For instance: 70/30 would be ______________ shares 70 percent of overruns/underruns and ________________shares 30 percent of overruns/underruns.
Buyer Seller
Economic Order Quantity Method
Determines procurement order size that will minimize the cost of acquisition and carrying inventory
From a Contract Cost Risk perspective, firm-fixed price is traditionally viewed as the least risky for contractors.
False
To estimate performance costs, the following questions must be answered:
In what quantities will the resources be needed? When will the resources be needed? How much will those resources cost in the marketplace? What resources (labor, material, subcontracts, odc) will be needed to do the work?
Return on Investment (ROI) =
Income / Invested Capital
Effective, well-formulated BOEs (Basis of Estimates) or estimate justifications, with all the proper documentation and rationale will produce many benefits to both management and the customer. These include:
Increased win probability A more accurate budget after contract award Better negotiation results Increased credibility with the customer Less proposal "rework" Minimized audits, fact-finding, and negotiations
According to the author of the article "The Contractor's Guide to managing Cost-Type Contracts," poorly managed cost-reimbursement contracts can result in:
Incurring a loss Violations of the Civil False Claims Act Inaccurate cost reporting and projections Poor cash flow
Assets =
Liabilities + Owners Equity
LPTA is an acronym for:_________________
Lowest-Price-Technically-Acceptable
Time-and-materials is a type of pricing arrangement in which the buyer agrees to pay the contractor for:
Materials purchased in support of the buyer's requirements Its time spent (based on pre-established fixed hourly labor rates
The necessary elements for a CPIF contract are:
Maximum fee Target fee Minimum fee Share ratio(s) Target Cost
Profitability Index (PI) =
Present value of cash inflows / Present value of cash outflows
Best value is a determination of which offer presents the best trade-off between______________ and _________________
Price performance
Profit should be a comprehensive monetary representation of _______________.
Risk
Generally the higher the potential profits, the higher will be the ___________ involved.
Risks
Put in order starting with the first and ending with the last, the five steps of the Price Analysis comparison process:
Select prices for comparison Identify factors that affect comparability Determine the effect of identified factors Adjust prices selected for comparison Compare adjusted prices
Engineering Build-up
Sometimes referred to as "grass roots" or "bottom-up" estimating
Parametric Analysis
Sometimes referred to as "top-down" approach
The necessary elements for a FPIF contract are:
Target Cost Ceiling Price Target Price Target Profit Sharing Formula
Cost estimates including subcontractor costs are supported by subcontractor quotations, with technical evaluations and cost/price analyses.
True
Cost Breakdown Analysis
The most common method of Cost Analysis
Creating a fair and reasonable price for buyers that also motivates a high volume of sales and provides a healthy rate of return or profitability for the seller - considering all of the potential risk factors - can be extremely challenging.
True
FFP contracts are appropriate for most commercial transactions when cost uncertainty is within commercially acceptable limits.
True
Weighted Average
Three or more similar products or services are averaged
A variation of the time-and-materials (T&M) contract, the labor-hour (LH) contract differs only in that the contractor does not supply materials.
True
According to the author of our textbook, never use an offer from a seller that you have determined is non-responsible, non-responsive, or technically outside the competitive range.
True
According to one of the article authors, the steps toward justifying award of a profit or fee value can be achieved through:
Understanding the weighted guidelines evaluation criteria Providing relevant rationale Writing a strong basis of estimate (BOE) Early and often communication
Activity-Based Costing Technique
Used to more accurately and realistically allocate indirect costs to their appropriate cost drivers
Technical Consensus
Used when no structured resource estimating model can be applied; Delphi
Over time, the three general pricing arrangement categories that have evolved are:
fixed-price (FP) cost-reimbursement (CR) time-and-materials (T&M)
The purpose of cost estimating is to develop a [purpose1] and [purpose2] price.
fair and reasonable