Deck 13: Price Determination

Question 1

cost-based approach cannot succeed in a competitive market if the product does not remain acceptable to the Department of Commerce.

Answer 1

False

Question 2

In today's business environment, when sound money management is so important, selling firms will offer ________ discounts if payments for goods and services are promptly remitted.

A) seasonal
B) cash
C) quantity
D) trade
E) rebates and

Answer 2

B

Question 3

There are some instances where the supplier will employ short-term strategic pricing in order to _______________.

A) gain a competitive advantage
B) increase market share or increase sales
C) gain a competitive advantage or close out obsolete items
D) close out discontinued items
E) gain market share or dump unwanted items

Answer 3

E

Question 4

The price of a product or service should be expected to cover cost of _____________, plus a reasonable profit.

A) production
B) promotion
C) distribution
D) all of the above
E) "A" and "B" only

Question 5

Perhaps the most important factor associated with the purchasing decision is the _____________ and the ______________ between the buying and supplying firms.

A) business environment / power imbalance
B) economy / relationship
C) economy / power relationship
D) economic environment / power relationship
E) business economy / power imbalance

Question 6

In general, price is important; however, remember __________ of many variables that go into purchasing decisions.

A) it is the single most important
B) quality is the most important
C) it is only one
D) delivery is the most important
E) quantity standards are the most important

Question 7

One of the most important and complex decisions a firm has to make is how much to _____________________.

A) buy for its production lint
B) charge for its products and services
C) pay for its items and services
D) pay its employees
E) charge off as expenses

Question 8

_______ discount represents the compensation for the buyer who eliminates a distributor or other middlemen from the transaction. _______ discounts are usually used by the manufacturer to protect a unique selling opportunity. This is accomplished by providing the buying firm an incentive to buy directly from the manufacturer.

A) cash / Cash
B) quantity / Quantity
C) seasonal / Seasonal
D) quality / Quality
E) trade / Trade

Question 9

The buying firm, no matter how powerful, should attempt to obtain a ___________ and good consensus.

A) fair price
B) market price
C) discount price
D) low price
E) standard price

Question 10

The market approach to pricing is more erratic simply because the supplier, through the use of market research, collects information on its __________ and from their ___________ to determine where the price should be pegged.

A) markets / suppliers
B) customers / research
C) expenses / sales representatives
D) competitors / customers
E) web site / sales representatives

Question 11

The objective of the purchasing department is to buy the _______ materials from the ______ supplier at the ______ time and at the ______ price.

A) best quality / best / appropriate / lowest
B) best / best / appropriate / best
C) right / right / right / right
D) most / best / best / best
E) right / best / appropriate / lowest

Question 12

If you buy items for one-half the market price without obtaining appropriate quality, delivery, or quantity standards, your firm would _________________.

A) have a competitive advantage
B) suffer the consequences
C) be at a strategic disadvantage
D) be rendered noncompetitive
E) be ahead of the competition

Question 13

The effective buyer in a competitive environment will more than likely obtain purchased goods and services at a __________ given that quality, delivery, and proper quantities are appropriate.

A) market price
B) discount
C) fair price
D) low
E) bargain

Question 14

In the end, the buying firm must determine whether the purchase price fits its competitive cost structure. This is called ____________. If the _________ is too low to generate interest from suppliers, it may be necessary for the buyer to consider applying a value analysis approach to the product in question.

A) discount pricing / discount price
B) market pricing / market price
C) competitive pricing / competitive price
D) target pricing / target price
E) cost analysis / discount price

Question 15

The analysis phase (of the buying decision) requires the decision maker to investigate _____________ sources of supply.

A) at least two potential
B) at least five potential
C) all potential
D) the best
E) the best three

Question 16

In the short term, a firm can sell its products ____________; however, at some point, the firm will be required to _______________.

A) at low prices / make money or close up shop
B) at above average prices / get competitive
C) at high prices / become competitive or lose sales
D) below its total cost / make a profit or quit the business
E) competitive prices / become profitable

Question 17

Given the complexity of the buying decision, the purchasing professional must be prepared to analyze each significant buying situation on the basis of the ___________________ of various buying decisions.

A) technological impacts
B) conceptual and the economic impacts
C) competitive impacts
D) economic and competitive impacts
E) productivity and economic impacts

Question 18

The major psychological influence in a buyer-supplier relationship is __________. It is conceivable that a (n) _________ buyer could force a supplier to eliminate its overhead from the ultimate price. The danger for the buyer is that this so-called good buy may drive the supplier out of business and that this reduction in competition may result in massive price __________ in the long run.

A) prestige / chain store / discounts
B) feelings / strong / decreases
C) credibility / influential / increases
D) power / weak / decreases
E) power / powerful / increases

Question 19

The customer perception of _______________ is also important when determining market prices.

A) the company
B) value
C) quality and service
D) competition
E) value and quality

Question 20

The first question a purchasing professional should ask a supplier is, "How much of a discount can I receive if I buy from you?" Some of the more popular discounts are __________________ discounts.

A) cash, trade, and quality
B) cash, seasonal, and trade
C) seasonal, trade, and quantity
D) cash, trade, and quantity
E) quarterly, cash, and quantity

Question 21

ompanies are spending an increasingly larger percentage of their revenue dollars for __________________.

A) the acquisition of goods and services
B) labor
C) advertising and promotion
D) supplies
E) advanced technology

Question 22

_________ costs are associated with non-manufacturing-related costs.Insurance, managerial salaries, property taxes, and depreciation expenses are examples of _________ costs.

A) Direct / direct
B) Indirect / indirect

Question 23

The buying firm must consider its total cost of accepting a quantity discount. Specifically, the ___________ associated with carrying larger quantities must be compared to the expected benefit of the discounts.

A) direct costs
B) indirect costs
C) holding costs
D) transportation costs
E) cash outlay

Question 24

The ___________ Act suggests that it is illegal to offer a quantity discount for commodities of like grade and quality that are not based on differences in the cost of manufacturer sales, or delivery resulting from the differing methods or quantities in which such commodities are sold or delivered.

A) Robin-Parmer
B) Robinson-Patrick
C) Robinson-Patman
D) Martin-Parmer
E) Roberts-Pullman

Question 25

Justifying a quantity discount is the responsibility of the buying firm. The buyer must be able to document the actual cost savings.

Question 26

The general sources of price information are which of the following?

A) published price lists and quotations
B) other buyers in the market and trade journals
C) negotiations and competitive bidding
D) distribution
E) all of the above

Question 27

Improvements are possible in the way most tasks are performed. The improvement process may have an insignificant effect on the buyer's total purchase price.

Question 28

__________________ is becoming the most important competitive weapon necessary to ensure survival in today's competitive environment.

A) Strategic planning
B) Competitive analysis
C) A low price strategy
D) A differentiated market segmentation strategy
E) Price determination

Question 29

_________ discounts are discounts granted to the buyer for buying larger quantities.

A) Trade
B) Cash
C) Seasonal
D) Preferred
E) Quantity

Question 30

___________ price lists are usually prices generated based on the seller's total cost structure.

A) Discount
B) Trade
C) Standard
D) Catalogue
E) Preferred customer

Question 31

The competitive bidding process should not be employed when the following conditions prevail:
The dollar value of the bid must be large enough to justify the expense of bidding.The specifications of the product on service must be precise enough for both the buying and selling firms to accurately cost out.There are enough selling firms in the market.There is adequate time to use this form of bidding. The competitive process usually takes from four to eight weeks for most industrial firms.

Question 32

The ____________ techniques have been used extensively in cost estimating, pricing, negotiating contracts, and estimating the major implications of changes in design.

A) TQM
B) MBO
C) Herzberg
D) Deming
E) learning curve

Question 33

The purchasing professional must understand the dynamic nature of ________ cost.

A) indirect
B) direct
C) variable
D) labor
E) advertising

Question 34

The cost components of price determination can be divided into direct and indirect costs. _______ costs relate to the actual units of production. If the unit is not produced, ________ costs are not incurred.

A) Indirect / indirect
B) Direct / direct

Question 35

firm cannot afford to operate without _____________. _______ is essentially an economic cost of doing business.

A) a good gross margin / Gross margin
B) sales / Sales promotion
C) good employees / Labor
D) good money management practices / Money management
E) a realized profit / Profit

Question 36

When the buying firm is buying from sellers that service firms similar to the buying firm's markets, the prices will more than likely increase.

Question 37

The underlying behavior of the improvement curve reflects a systematic improvement (percentage reduction) of labor per unit as a function of cumulative units produced.

Question 38

Price reflects more than cost and profit; pricing decisions also must be based on the degrees of competition and buyer-seller relationships. According to the textbook the competitive pressures of price also must consider which of the following?

A) the number of sellers in the market
B) the number of buyers in the market
C) the general economic environment
D) all of the above
E) "A" and "B" only

Question 39

competitive firm's _____________ must include the following: The right material (quality).The right quantity.The right source.The right timing.The right price.

A) strategic buying plan
B) competitive strategy
C) pricing plan
D) advertising and marketing strategy
E) purchasing objectives

Question 40

The competitive bidding process must begin with an assessment sizing up the suppliers' _________________.

A) labor and materials costs
B) pricing strategies on competitive positions
C) power
D) need for sales
E) competitive strength

Question 41

If setup cost and learning rates are ignored, a buying firm will, more than likely, _______________.

A) become engaged in a price war
B) suffer from a competitive disadvantage
C) gain a competitive advantage
D) receive a major discount
E) fall into a competitive bidding trap

Question 42

Negotiations should not be used when there are time constraints, the specifications are not clearly stated, there are not enough sellers, and the dollar value is too low to consider using the competitive bidding process.

Question 43

If the selling firm fails to give explicit specifications and/or prices for alternative quantities of the item, what appears to be a good buy may result in an excessive price.

Question 44

Large setup and tooling costs can easily be amortized by the buying firm.

Question 45

buying firm must consider the price variation that is inherent in buying __________ components in order to understand various design specifications and associated costs.

A) high-priced
B) low-priced
C) standard
D) custom
E) all
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Question 46

The buying firm must develop an estimate of the winning bid amount. The buying firm's estimate should be based on market data, including the following:
The dollar value of previous bids.The expected profit from previous bids.The data set is used to estimate the probability of different bid scenarios. The scenario should include mock bids with low, moderate, and high profit margins.The expected profit equation is given as:(πA) = P(A) × y(A)

Question 47

Negotiation should be used any time the buyer does not have confidence in the __________ price lists and competitive bidding seems unreasonable.

A) catalogue
B) standard
C) trade
D) direct
E) discount