Deck 2: Purchasing Management

Question 1

Procurement credit cards can be used for small purchases including meals, lodging, and travel expenses.

Answer 1

True

Question 2

Cost savings is an advantage of using an e-procurement system.

Answer 2

True

Question 3

The procedures for public procurement differ from the private sector.

Answer 3

True

Question 4

Blank check purchase orders, Corporate purchasing cards, Petty cash, and Open-end purchase orders are all possible alternatives to dealing with small value purchases such as those for office supplies.

Question 5

Merchants primary task is to purchase raw materials for conversion purposes.

Question 6

Purchasing can be broadly classified into two categories: merchants and industrial buyers.

Question 7

If the break-even point in a typical make-buy scenario is 19,000 units and 10,000 units are required by the firm, then the firm should choose to make the units.

Question 8

The total cost analysis demonstrates how other costs besides the unit cost can affect purchase decisions.

Question 9

A material requisition and a purchase requisition are the same thing.

Question 10

The possibility of events like strikes, assembly line breakdowns, and natural disasters are all reasons a company should favor using a single supplier.

Question 11

The goal of a good purchasing system is to ensure efficient information transitions between the materials users, the purchasing personnel, and the suppliers.

Question 12

A low ROA suggests that management is capable of generating large profits with relativiely small investments.

Question 13

NAFTA and the WTO are trade organizations seeking to reduce tariff and non-tariff barriers among its member countries.

Question 14

A follow-up is considered a reactive approach to speed up an overdue shipment.

Question 15

The purchase order is NOT a legally binding contract until it is accepted by the supplier.

Question 16

Foreign suppliers located farther away may be able to deliver goods faster than domestic suppliers due to more efficient transportation and logistical systems.

Question 17

A reason for making items instead of buying them would include better quality control.

Question 18

Decentralized purchasing is the practice where individual, local purchasing departments throughout a single corporation make their own, individual purchasing decisions to fulfill their individual local needs.

Question 19

The Total Cost of Ownership Concept does NOT include quantitative factors.

Question 20

Generally, firms outsource noncore activities while focusing on core competencies.

Question 21

Which of the following refers to the measurement of the impact of change in purchase spend on a firm's profit before taxes, assuming gross sales and other expenses remain unchanged?

A) Break-Even Analysis
B) Profit-Leverage Effect
C) Direct Offset
D) Leveraging Purchase Volume

Question 22

Which of the following illustrates Forward Vertical Integration?

A) Microsoft starting a new division that designs and manufactures clothing
B) Ford automotive buying additional machines for production
C) Subway sandwich company buying a bakery to make the bread for their sandwiches.
D) Sony buying trucks to deliver their finished goods inventories to their customers' warehouses

Question 23

When a product is purchased which is complicated or highly technical a ______________may be issued instead of a request for quotation.

A) Request for proposal
B) Purchase order
C) Contract for sale
D) Sales order

Question 24

As firms seek to improve the products they offer to the market, companies are seeking help from their suppliers in new product design and development through:

A) Supplier certification programs
B) Manufacturer certification programs
C) Early supplier involvement
D) Total Cost of Ownership initiatives

Question 25

Given the following make-buy information, what would be the break-even point?

A) 1200 units
B) 1708 units
C) 800 units
D) 460 units

Question 26

Blanket or open-end purchase orders are suitable for buying

A) Computers
B) Heavy equipment
C) Custom built components
D) Office supplies

Question 27

When calculating Return on Investment, current assets include:

A) Cash, Accounts Receivable, and Inventory
B) Cash, Accounts Receivable, and Equipment
C) Accounts Receivable, Equipment, and Real Estate
D) Equipment, Buildings, and Real Estate

Question 28

Petty cash is being phased out in favor of:

A) Hard cash
B) A blank check
C) P-card
D) Score-carding

Question 29

Which of the following is a reason small value purchases are handled differently?

A) To give the buyer additional supplier choices
B) To obtain a higher quality product
C) To have better tracking of material usage
D) To control unnecessary administrative costs

Question 30

Given the following make-buy information, what would be the break-even point?

A) 9170 units
B) 3650 units
C) 1040 units
D) 2750 units

Question 31

A form of purchasing that is placed directly to the supplier and suitable when firms use the same components to make standard goods over a relatively long period of time is referred to as:

A) Material requisition
B) Purchase requisition
C) Planned order release
D) Traveling requisition

Question 32

While most public procurement is focused on goals like those of purchasing departments in the private sector, U.S.federal government purchases must comply with the:

A) Services and Materials Acquisition Act
B) Fair Standards and Equitable Purchases Act
C) Federal Code of Conduct for Procurement
D) Federal Acquisition Regulation

Question 33

Which type of requisition is used for materials and standard parts that are requested on a recurring basis?

A) Open requisition
B) Blanket requisition
C) Traveling requisition
D) Recyclable requisition (Cyc-Rec)

Question 34

The primary goals of purchasing include all EXCEPT:

A) Secure materials at the lowest cost
B) Maximize customer satisfaction
C) Improve the quality of finished goods produced
D) Ensure the highest quality raw materials are purchased

Question 35

The total cost of ownership for Supplier A is $2,670,000.The total cost of ownership for Supplier B is $1,750,000.The total cost of ownership for Supplier C is $2,990,000.Using Total Cost Analysis, it will be more cost-effective to use

A) Supplier A
B) Supplier B
C) Supplier C
D) Cannot be determined

Question 36

Total Cost of Ownership does NOT consider which of the following factors?

A) Purchase order costs
B) Freight costs
C) Payment terms
D) Tooling costs

Question 37

Inventory Turnover can be calculated by:

A) Ratio of cost of goods sold over average inventory cost
B) Ratio of average inventory cost over cost of goods sold
C) Ratio of inventory days in stock over average inventory cost
D) Ratio of average inventory cost over inventory days in stock

Question 38

Firms can use total cost analysis to:

A) See how efficiently management is using its total assets to generate profits
B) Select the most cost-effective supplier
C) Show how many times a firm's inventory is utilized and replaced over an accounting period
D) Brainstorm and isolate the causes of a problem

Question 39

Benefits derived from implementing e-procurement systems include all of the following EXCEPT:

A) Allows buyers to submit bids and suppliers to respond to those bids in real time
B) Increases the accuracy in communication between buyers and suppliers
C) Creates numerous additional job opportunities in the purchasing department
D) Tracking bids and transactions is easier and faster

Question 40

Which of the following would be a good reason to outsource (buy) versus making?

A) To utilize existing capacity within a company's own firm
B) A firm lacks the technology or expertise to produce an item
C) To have more direct control over the design and production of an end item
D) No competent supplier presently produces the needed item

Question 41

Which of the following statements is FALSE?

A) Centralized purchasing is where individual, local purchasing departments, such as at the plant level, make their own purchasing decisions.
B) Electronic procurement systems can aid a company in saving both time and money.
C) More than 50% of each sales dollar typically goes towards covering supply chain costs.
D) If a firm lacks the technology to make a required component they will need to consider buying/outsourcing.

Question 42

The term Supply Management is used to describe responsibilities above and beyond those of traditional purchasing.What are three of these key activities and why are they considered important to Supply Management?

Question 43

Which of the following is NOT a form of countertrade?

A) Barter
B) Kaizen blitz
C) Offset
D) Counterpurchase

Question 44

When using the Total Cost of Ownership concept, explain how a supplier with a higher unit price and higher tooling cost can end up being more cost effective than another supplier with a lower unit price and tooling cost.

Question 45

Which of the following is an advantage of a centralized purchasing department?

A) Less bureaucracy
B) More frequent shipments
C) Specialization
D) Closer contact between buyer and user

Question 46

Answer the questions that follow, based on the diagram provided belw

a.What are the fixed costs for the buy decision?
b.What is the breakeven quantity for the two options illustrated?
c.At Q = 300, would you choose the make or buy option? Why?
d.At Q = 200, what will be the total cost associated with the best decision at this quantity?

Question 47

Which of the following is a reason that single sourcing is considered risky/bad?

A) There could be supplier interruptions due to political instability
B) It could establish close relationships with the supplier
C) Larger orders make quantity discounts more likely
D) Decreases the item to item quality variability of items purchased

Question 48

Use what you understand about the outsourcing decision (Make vs.Buy) to answer this question.List and explain three reasons a restaurant might decide to buy pre-made desserts from a supplier rather than making the goods from scratch.

Question 49

Use the following information to determine which supplier for steering wheels is more cost-effective using total cost analysis.Late delivery of the component results in 50% lost sales and 50% back orders of finished goods.
Table 1

Table 2

Here is the freight rates for
Truckload (TL ? 40,000 lbs): $0.90 per ton-mile
Truckload Less-than-truckload (LTL): $1.10 per ton-mile
Note: per ton-mile = 2,000 lbs.per mile; number of days per year = 365

Question 50

The BOEHM Cell Phone Company has developed a new series of phones that it plans to bring to the market in the next 18 months.Management is considering whether to produce the product in-house or to contract out the purchasing and manufacturing of their new cell phones.
Provide FOUR conditions that would favor outsourcing and FOUR conditions that would favor making the cell phones in-house.

Question 51

Which of the following NOT a reason firms are expanding their supply bases to include foreign suppliers?

A) Lower shipping rates due to lower tariffs
B) Lower product cost
C) Better product quality
D) Overseas supplier holding the patent to the product

Question 52

Under which conditions would you most likely utilize a centralized purchasing system? List two advantages that would be gained by utilizing a centralized purchasing system.
Under which conditions would you most likely utilize a decentralized purchasing system? List two advantages that would be gained by utilizing a decentralized purchasing system.

Question 53

Which of the following is a reason for favoring single sourcing?

A) Encourages competition among suppliers
B) Spreads the risk of supply interruption
C) Reduces variabilities in quality levels
D) Reduces information about new processing technologies

Question 54

Global sourcing has become commonplace.Many companies now consider expanding their supply base to include foreign suppliers.List three reasons why companies choose to source globally.

Question 55

Which of the following is NOT a potential challenge for global sourcing?

A) Long delivery lead times
B) Costs involved in selecting foreign suppliers
C) Relaxed trade barriers
D) Labor and legal problems