MKT 431

Generally remain the same regardless of the number of units of products or services produced

Fixed Costs

Price is set greater than direct costs, allowing for sufficient contribution to cover indirect costs and overhead, and leaving a margin for profit

Cost approach

This year $5.00 old price Next year $4.80 new price .20 ?

Cost reduction

Only costs are reimbursed Buyer must persuade supplier that there will be enough subsidiary benefits from doing a particular job

Cost-no-fee (CNF)

The three types of purchasing authority are ________ authority, ________ authority, and __________ authority.

Express, Implied, and Emergency

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:

Fair Price

Price not subject to change, under any circumstances

Firm-fixed-price (FFP)

Items for which prices are comparatively low and the cost of price reduction efforts may exceed any price savings realized are: a. maintenance, repair, and operating supplies b. parts, components, and packaging c. raw materials d. capital assets e. services

a. maintenance, repair, and operating supplies

A cash discount allows: a. the seller to secure prompt payment and the buyer to pay a lower price per unit b. the buyer to always calculate the discount based on the delivery date c. the seller to secure prompt payment, but has no benefits for the buyer d. the seller to demand payment in cash on demand (C.O.D.) upon receipt of goods e. the buyer to pay a lower price per unit, but has no benefits for the seller

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

Tries to turn indirect costs into direct costs by tracking the cost drives behind the indirect costs

Activity Based Costing

This year $5.00 old price Supplier $5.10 proposed Negotiation $5.04 .06 ? .04 Cost Increase

Cost Avoidance

If the item is experimental and the specification are not firm, or if future costs cannot be predicted Buyer to reimburse supplier for all reasonable costs incurred (under a set of definite policies under which "reasonable" is determined) in doing the job or producing the required item or service, plus a specified dollar amount of profit A maximum amount may be specified for the cost

Cost-plus-fixed fee

Both buyer and seller agree on a target cost figure, a fixed fee, and a formula under which any cost over- or underpins are shared

Cost-plus-incentive-fee (CPIF)

Can be specifically and accurately assigned to a given unit of production of a product or service. Raw Materials

Direct Costs

Estimates and projects Empowers the buyer Credit worthiness of the supplier What % of supplier business does our company represent now and the future More strategic What other companies buy from their supplier Determines suppliers quote before negotiation

Global Supply Intelligence (GSI)

Incurred in the operation of a production plant or service process, but normally cannot be related directly to any given unit of production of a product or service. Professional services, uniforms, etc

Indirect Costs

Supplies and small-value purchases (SVPs) they do not become part of the end product

Maintenance, repair, and operating (MRO)

Prices are set in the marketplace and may not be directly related to cost

Market approach

nuts and bolts, valves and tubing; prices are fairly stable and quoted on a basis of "list price with some discount"

Parts components, and packaging

How does Portfolio Approach differ from ABC?

Portfolio focuses not only on value but also risk

Terms of contracts

Quantity Quality- Clause of repercussion of defect Price and Credit Terms-major cash flow gain Delivery Terms

Sensitive commodities, such as copper, wheat, and crude petroleum, and steel and cement

Raw and semi-processes materials

Vary with the number of units of products or services produced but are partly variable and partly fixed

Semi-variable costs

An externally focused process of analyzing costs in terms of the overall value chain - A continuous improvement process -Measure and improve specific cost elements -Tools and techniques to sustain cost savings year over year -Strategic Partnering to achieve competitive advantage -An opportunity for strong supply leadership to develop a cost culture rather than a price culture with multiple internal stakeholders and suppliers

Strategic Cost Management

Four outcomes to an offer

The offer may lapse The offer may be rejected The offer may be revoked The offer may be accepted

In product or service redesign

Value Analysis

In product or service design

Value Engineering

- A systematic approach to analyzing the functions of a product, part, service, or process - to satisfy all needed quality and user requirements - at optimum TCO

Value methodology

Vary directly and proportionally with the units of products or services produced

Variable Costs

The lowest bud may not receive the order if: a. the buyer discovers the lowest bidder is unreliable b. the buyer discovers the lowest bidder is unreliable, the lowest bid is higher than the buyer believes justifiable and there is reason to believe the bidders colluded c. there is reason to believe the bidders colluded d. the lowest bid is higher than the buyer believes justifiable and there is reason to believe the bidders colluded e. the lowest bid is higher than the buyer believes justifiable

b. the buyer discovers the lowest bidder is unreliable, the lowest bid is higher than the buyer believes justifiable and there is reason to believe the bidders colluded

When using competitive bidding to determine prices, the purchaser should ensure that the bidders are: a. sufficiently reliable b. qualified to make the item or service in accordance with the buyer's specifications and able to deliver it by the desired date c. numerous enough to ensure a truly competitive price d. qualified to make the item or service in accordance with the buyer's specification, able deliver it by the desired date, 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, able deliver it by the desired date and sufficiently reliable

d. qualified to make the item or service in accordance with the buyer's specification, able deliver it by the desired date, sufficiently reliable and numerous enough to ensure a truly competitive price

The cost approach to pricing: a. implies that prices are set based on the cost the market will bear b. is the only defensible pricing pricing mechanism for ethical companies to use c. means prices are adjusted to ensure the selling organization recoups all costs d. implies that cost analysis is the only technique to be used to negotiate prices e. means prices are set to cover direct costs, contribute to indirect costs, and provide a profit

e. means prices are set to cover direct costs, contribute to indirect costs, and provide a profit