SCM CH 11

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1. _____ = (Quality + Technology + Service + Cycle Time) ÷ C 7. In a/an _____ market structure, there exist identical D
Price. products with minimal barriers for new suppliers to
a. Cost enter the market, and price is solely a function of the
b. Efficiency forces of supply and demand.
c. Value a. monopolistic
d. Total cost b. oligopolistic
e. Target cost c. communistic
d. perfect competition
2. A/An _____ is defined as the cost of the next best E
e. Price is never solely a function of supply and
alternative.
demand, regardless of market structure.
a. operating cost
b. purchase price 8. In _____, a purchaser may have to use internal A
c. net present value engineering estimates about what it costs to produce
d. usage cost an item, rely on historical experience and judgment to
e. opportunity cost estimate costs, or review public financial documents to
identify key cost data about the seller.
3. All of the following are examples of broad total cost of C
a. reverse price analysis
ownership categories except _____.
b. TCO analysis
a. purchase price
c. penetration pricing
b. acquisition costs
d. using the PPI
c. sales, general, and administrative overhead costs
e. competition pricing
d. usage costs
e. end-of-life costs 9. _____ include(s) all costs incurred when a product, D
service, or capital equipment reaches the end of its
4. All of the following are opportunities for supplier cost D
useful life, net of amounts received from the sale of
reductions except _____.
remaining product or the equipment (salvage value).
a. process capability
a. Net present value costs
b. plant utilization
b. Usage costs
c. learning-curve effect
c. Purchase price
d. ability to vote out the supplier's labor union
d. End-of-life costs
e. management capability
e. Opportunity costs
5. _____ applies the price/cost equation across multiple E
10. _____ includes both cost and revenue data for an item to C
processes that span two or more organizations across a
identify the point where revenue equals cost, and the
supply chain.
expected profit or loss at different production volumes.
a. Make-buy analysis
a. Make-buy analysis
b. Price analysis
b. TCO
c. Cost analysis
c. Break-even analysis
d. Target costing
d. Market-share pricing
e. Total cost analysis
e. None of the above.
6. The emphasis of the _____ is on obtaining sufficient C
11. _____ indicates whether a seller can lower its cost as a E
current revenue to pay for operating cost rather than
result of the repetitive production of an item.
on profit.
a. Process capability analysis
a. price volume model
b. Market analysis
b. promotional pricing model
c. Price analysis
c. revenue pricing model
d. Break-even analysis
d. market skimming model
e. Learning-curve analysis
e. competition pricing model
12. In should-cost modeling, _____ are any components not B
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
13. In should-cost modeling, _____ include those D 19. In TCO, _____ includes all costs associated with bringing C
components the company has direct control or the product, service, or capital equipment to the
influence over. customer's location.
a. direct costs a. purchase price
b. assumption variables b. opportunity costs
c. variable costs c. acquisition costs
d. decision variables d. usage costs
e. commodity prices e. end of life costs
14. In should-cost modeling, _____ refers to the integrity E 20. In TCO, _____ is the amount paid to the supplier for the D
and transparency of the cost model created. product, service, or capital equipment.
a. direct cost a. acquisition cost
b. value stream maps b. usage cost
c. make-or-buy analysis c. end-of-life cost
d. fixed cost d. purchase price
e. auditability e. opportunity cost
15. In should-cost modeling, the _____ provides a high level B 21. In the framework for strategic cost management, _____ E
view of the supply chain, and then the supplier's are high-value products or services and can be sourced
primary cost elements are broken down into material, through traditional bidding approaches that require
labor, overhead, transportation freight, inventory cost, price analysis using market forces to do the work and
maintenance costs, and others. identify what is a competitive price.
a. PPI a. critical products
b. value stream map b. unique products
c. target price c. custom-made products
d. product specification d. generics
e. None of the above. e. commodities
16. In TCO for a product, _____ include(s) all costs E 22. In the _____, prices are set to achieve a high profit on A
associated with converting the purchased part/material each unit by selling to supply managers who are
into the finished product and supporting it through its willing to pay a higher price because of a lack of
usable life. supply management sophistication or who are willing
a. purchase price to pay for products or services of perceived higher
b. acquisition costs value.
c. end of life costs a. market skimming model
d. opportunity costs b. revenue pricing model
e. usage costs c. promotional pricing model
d. price volume model
17. In TCO for a service, _____ include all costs associated B
e. competition pricing model
with the performance of the service that are not
included in the purchase price. 23. In the _____, pricing is based on the assumption that B
a. invoice costs long-run profitability depends on the market share
b. usage costs obtained by the supplier.
c. acquisition costs a. price volume model
d. end of life costsend of life costs b. market-share model
e. interest costs c. open market model
d. target pricing model
18. In TCO for capital equipment, _____ are all costs A
e. market skimming model
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
24. In the _____, suppliers are typically concerned about A 30. A _____ is an analytical tool that identifies the primary A
capacity utilization, covering fixed cost, and retaining external forces that are causing prices to either
skilled labor during market slowdowns, when they are increase or decrease.
willing to reduce their prices until market conditions a. market analysis
change. b. total cost analysis
a. revenue pricing model c. cost analysis
b. market skimming model d. make-buy analysis
c. penetration pricing model e. target price analysis
d. market-share model
31. The _____ is an approach to estimating the different E
e. competition pricing model
components that make up the supplier's per unit price
25. In the _____, the desired profit is added to the estimated D per unit of product or service, i.e., what the product or
costs. service should cost in a theoretical world.
a. penetration pricing model a. market skimming model
b. revenue pricing model b. make-buy analysis
c. margin pricing model c. competition pricing model
d. rate-of-return pricing model d. rate-of-return model
e. TCO model e. Should-cost model
26. In the _____, the seller is willing to take a lower price E 32. _____ is defined as the present value of all costs B
because of the potential mass market appeal of the associated with a product, service, or capital equipment
product, resulting in substantially higher sales volumes. that are incurred over its expected life.
a. revenue pricing model a. Cash flow analysis
b. promotional pricing model b. Total cost of ownership
c. revenue pricing model c. Make-buy analysis
d. cash discount model d. Revenue pricing
e. market-share model e. Competition pricing
27. In the _____, the supplier analyzes the market to find A 33. _____ is the process of analyzing each individual cost B
the combination of price per unit and quantity of sales element (i.e., material, labor hours and rates, overhead,
that maximizes its profit on the assumption that (1) general and administrative costs, and profit ) that
lowering the price per unit will result in more units together add up to the final price.
being sold, and (2) greater volume will spread the a. Price analysis
indirect cost over more units. b. Cost analysis
a. price volume model c. Cost analysis
b. sole sourcing model d. Total cost analysis
c. market-share model e. Make-buy analysis
d. market skimming model
34. The _____ presents pricing for individual products and D
e. promotional pricing model
services that is set to enhance the sales of the overall
28. In the _____, the supplier establishes a price that will B product line rather than to ensure the profitability of
provide a profit margin that is a predetermined each product.
percentage of the quoted price, i.e., not a percentage a. price volume model
of cost. b. competition pricing model
a. rate-of-return pricing model c. market skimming model
b. margin pricing model d. promotional pricing model
c. market-share model e. revenue pricing model
d. competition pricing model
35. _____ refers to the process of comparing supplier prices D
e. target costing model
against external price benchmarks, without direct
29. In the _____, the supplier simply takes its estimate of B knowledge of the supplier's costs.
costs and adds a markup percentage to obtain the a. Cost analysis
desired profit. b. Make-buy analysis
a. margin pricing model c. Target costing
b. cost markup pricing model d. Price analysis
c. total cost analysis model e. Total cost analysis
d. penetration pricing model
e. revenue pricing model
36. The _____ strategy is based on determining the E 49. T/F: How well suppliers purchase their goods and false
highest price that can be offered to the supply services has no direct impact on purchase price
manager that will still be lower than the price levels.
offered by competitors.
50. T/F: Identification of all costs provides the basis for true
a. penetration pricing model
establishing joint improvement targets.
b. market-share model
c. cash discount 51. T/F: If total costs are less than target costs, the false
d. revenue pricing model design must change or costs must be reduced.
e. competition pricing model 52. T/F: In general, low-value generics in which a true
37. T/F: A cost-based approach to determining price is false competitive market with many potential suppliers
clearly appropriate for all purchased items. exists should emphasize total delivered price.

38. T/F: A cost-based approach to supplier pricing is true 53. T/F: In many cases, the price charged by a seller true
feasible when the seller contributes high added may have little or no relationship to actual costs
value to an item through direct or indirect labor and 54. T/F: In setting target prices and target costs, the true
specialized expertise. new-product development team should bear in
39. T/F: Although a quantity discount has a positive false mind the cardinal rule of target costing: the target
effect on the purchase price, a buyer need not be cost can never be violated.
cautious about the net impact on the total cost of 55. T/F: Most large firms base purchase decisions and false
an item. evaluation suppliers on only the cost elements of
40. T/F:A major benefit of multiple sourcing is a lower false unit price, transportation, and tooling.
price that results from the higher volumes offered 56. T/F: Price analysis focuses simply on a seller's price true
to a supplier with little or no consideration given to the actual
41. T/F: As a product reaches its end of life, supply true cost of production.
management cannot ignore the potential value of 57. T/F: Purchasers impact price at the time they set the true
environmental initiatives to remanufacture, recycle, specifications for the product or service.
or refurbish products that are becoming obsolete.
58. T/F: Some sellers rely on a detailed analysis of true
42. T/F: A seller's cost structure affects price because, true internal cost structures to establish price, whereas
in the long run, the seller must price at a level that others simply price at a level comparable to the
covers all variable costs of production, contributes competition.
to some portion of fixed costs, and contributes to
59. T/F: Strategic cost management approaches do not false
some level of profit
vary according to the stage of the product life
43. T/F: A should-cost model can lead the procurement true cycle.
manager to better understand elements of
60. T/F: Target pricing is an innovative approach used in false
overhead, mark-ups on non-value-added costs, and
the final stages of the product life cycle to establish
other components that can undermine price
a contract price between a buyer and a seller.
inflation.
61. T/F: The Consumer Price Index (CPI) tracks material false
44. T/F: At the highest levels of the organization, top true
price movements from quarter to quarter, is scaled
management uses break-even analysis as a
to a base year (1988), and tracks the percentage
strategic planning tool.
increase in material commodity prices based on a
45. T/F: Break-even analysis includes both cost and true sample of industrial purchasers.
revenue data for an item to identify the point where
62. T/F: The cost of a new product is no longer an true
revenue equals costs, and the expected profit or
outcome of the product design process; rather, it is
loss at different production volumes.
an input to the process.
46. T/F: Building a TCO model is an easy task. false
63. T/F: The difference between the supplier's price and true
47. T/F: Economic conditions seldom determine whether false the target cost becomes the strategic cost-
a market is favorable to the seller or to the reduction objective.
purchaser.
64. T/F: The main risk in target and cost-based pricing true
48. T/F: Examples of monopolies in the United States false concerns volume variability.
include the steel, automobile, and appliance
industries
65. T/F: The major benefits from cost-reduction efforts false 78. Which of the following is not one of the categories of B
occur when supply management is not involved in products in the strategic cost management matrix?
the new-product/service development cycle. a. Commodities.
b. One-time buys.
66. T/F: The market-share model is also known as the true
c. Critical products.
penetration pricing model and is an aggressive
d. Unique products.
pricing approach for efficient producers because
e. Generics.
price is a direct function of cost.
79. Which of the following is not one of the common A
67. T/F: The opportunity cost of taking the supplier's false
assumptions typically used in break-even analysis?
cash discount is almost always higher than the
a. Fixed costs are never considered.
opportunity cost of not taking the cash discount.
b. Fixed costs remain constant over the period and
68. T/F: The price paid for purchased products and false volumes considered.
services has no direct impact on the end customer's c. Variable costs fluctuate in a linear fashion.
perception of value provided by the organization. d. Revenues vary directly with volume.
69. T/F: The value of money spent any time in the false e. Break-even analysis considers total costs rather than
future does not depend on the organization's cost average costs.
of capital 80. Which of the following is not one of the important A
70. T/F: Traditional pricing practices have supported false factors to consider when building a TCO model?
cooperative efforts to make design, product, and a. Focus on the small and easily measurable costs first.
process improvements with suppliers. b. Building a TCO can be a costly and time-intensive
activity.
71. T/F: Under penetration pricing, using final price as a false
c. Work in a team.
basis, the product is disaggregated into major
d. Make sure to obtain senior management buy-in
subsystems, each of which has its own target cost.
before embarking on a full-fledged TCO.
72. T/F: Under traditional pricing approaches, product true e. When considering global sourcing, consider all of
cost + profit = selling price. the relevant labor, quality, logistics, and import costs
73. T/F: Using a traditional pricing approach, the selling false associated with the total supply chain.
price - profit = allowable product cost. 81. Which of the following is not one of the questions that C
74. T/F: When demand exceeds supply, a buyer's market false should be asked when analyzing a seller's pricing
exists, and prices generally decrease. strategy?
a. Does the seller have a long-term pricing strategy, or
75. T/F: When supply exceeds demand, a buyer's market true is it short-term in nature?
exists, and prices generally move downward. b. Is the seller a price leader or a price follower?
76. T/F: With the increased amount of outsourcing true c. How many employees does the seller's plant
occurring in every global company today, the employ?
majority of the cost of goods sold is driven by d. Is the seller attempting to establish entry barriers to
suppliers, which are outside the four walls of an other competitors by establishing a low price initially,
organization. then preparing to raise prices later in the future?
e. Is the seller using a cost-based pricing approach or a
77. Which of the following is not an item or product that E
market-based pricing approach?
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.
82. Which of the following statements regarding cost-savings sharing is false? D
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.
83. With _____, a product's allowable cost is strictly a function of what a market segment is willing to pay less the profit goals for B
the product.
a. penetration pricing
b. target pricing
c. market-share pricing
d. should-cost modeling
e. revenue pricing