Deck 11: Strategic Cost Management

Question 1

A major benefit of multiple sourcing is a lower price that results from the higher volumes offered to a supplier.

Answer 1

False

Question 2

With the increased amount of outsourcing occurring in every global company today,the majority of the cost of goods sold is driven by suppliers.

Answer 2

True

Question 3

Examples of monopolies in the United States include the steel,automobile,and appliance industries.

Answer 3

False

Question 4

Purchasers impact price at the time they set the specifications for the product or service.

Question 5

The price paid for purchased products and services has no direct impact on the end customer's perception of value provided by the organization.

Question 6

The opportunity cost of taking the supplier's cash discount is almost always higher than the opportunity cost of not taking the cash discount.

Question 7

When supply exceeds demand,a buyer's market exists,and prices generally move downward.

Question 8

Some sellers rely on a detailed analysis of internal cost structures to establish price,whereas others simply price at a level comparable to the competition.

Question 9

In the long run,the seller must price at a level that covers all variable costs of production,contributes to some portion of fixed costs,and contributes to some level of profit.

Question 10

Although a quantity discount has a positive effect on the purchase price,a buyer need not be cautious about the net impact on the total cost of an item.

Question 11

When demand exceeds supply,a buyer's market exists,and prices generally decrease.

Question 12

The major benefits from cost-reduction efforts occur when supply management is involved late in the new-product/service development cycle.

Question 13

Low-value generics in which a competitive market with many potential suppliers exists should emphasize total delivered price.

Question 14

As a product reaches its end of life,supply management cannot ignore the potential value of environmental initiatives to remanufacture,recycle,or refurbish products that are becoming obsolete.

Question 15

The market-share model is also known as the penetration pricing model.

Question 16

Economic seldom determine whether a market is favorable to the seller or to the purchaser.

Question 17

Strategic cost management approaches do not vary according to the stage of the product life cycle.

Question 18

In many cases,the price charged by a seller may have little or no relationship to actual costs.

Question 19

The CPI tracks material price movements from quarter to quarter,is scaled to a base year (1988),and tracks the percentage increase in material commodity prices based on a sample of industrial purchasers.

Question 20

Price analysis focuses simply on a seller's price with little or no consideration given to the actual cost of production.

Question 21

A cost-based approach to supplier pricing is feasible when the seller contributes high added value to an item through direct or indirect labor and specialized expertise.

Question 22

A cost-based approach to determining price is appropriate for all purchased items.

Question 23

The value of money spent any time in the future does not depend on the organization's cost of capital.

Question 24

At the highest levels of the organization,top management uses break-even analysis as a strategic planning tool.

Question 25

____ = (Quality + Technology + Service + Cycle Time)¸ Price.

A) Cost
B) Efficiency
C) Value
D) Total cost
E) Target cost

Question 26

Target pricing is an innovative approach used in the final stages of the new-product development cycle to establish a market price between a buyer and a seller.

Question 27

Under penetration pricing,using final price as a basis,the product is disaggregated into major subsystems,each of which has its own target cost.

Question 28

Under traditional pricing approaches,the selling price - profit = selling price.

Question 29

Traditional pricing practices have supported cooperative efforts to make design,product,and process improvements with suppliers.

Question 30

Building a TCO model is an easy task.

Question 31

If total costs are less than target costs,the design must change or costs must be reduced.

Question 32

Identification of all costs provides the basis for establishing joint improvement targets.

Question 33

____ is the process of analyzing each individual cost element that together add up to the final price.

A) Price analysis
B) Cost analysis
C) Target costing
D) Total cost analysis
E) Make-buy analysis

Question 34

The main risk in target and cost-based pricing concerns volume variability.

Question 35

How well suppliers purchase their goods and services has no direct impact on purchase price levels.

Question 36

____ refers to the process of comparing supplier prices against external price benchmarks,without direct knowledge of the supplier's costs.

A) Cost analysis
B) Make-buy analysis
C) Target costing
D) Price analysis
E) Total cost analysis

Question 37

The cost of a new product is no longer an outcome of the product design process; rather,it is an input to the process.

Question 38

The target cost can never be violated.

Question 39

The difference between the supplier's price and the target cost becomes the strategic cost-reduction objective.

Question 40

Using a traditional pricing approach,the selling price - profit = allowable product cost.

Question 41

In the framework for strategic cost management,____ are high-value products or services and can be sourced through traditional bidding approaches that require price analysis using market forces to do the work and identify what is a competitive price.

A) critical products
B) unique products
C) custom-made products
D) generics
E) commodity products

Question 42

____ indicates whether a seller can lower its cost as a result of the repetitive production of an item.

A) Process capability analysis
B) Market analysis
C) Price analysis
D) Break-even analysis
E) Learning-curve analysis

Question 43

In the ____,the seller is willing to take a lower price because of the potential mass market appeal of the product,resulting in substantially higher sales volumes.

A) revenue pricing model
B) promotional pricing model
C) revenue pricing model
D) cash discount model
E) market-share model

Question 44

In the ____,suppliers are typically concerned about capacity utilization,covering fixed cost,and retaining skilled labor during market slowdowns where they are willing to reduce their prices until market conditions change.

A) revenue pricing model
B) market skimming model
C) penetration pricing model
D) market-share model
E) competition pricing model

Question 45

Which of the following is not one of the questions that should be asked when analyzing a seller's pricing strategy?

A) Does the seller have a long-term pricing strategy, or is it short-term in nature?
B) Is the seller a price leader or a price follower?
C) How many employees does the seller's plant employ?
D) Is the seller attempting to establish entry barriers to other competitors by establishing a low price initially, then preparing to raise prices later in the future?
E) Is the seller using a cost-based pricing approach or a market-based pricing approach?

Question 46

In the ____,the supplier simply takes its estimate of costs and adds a markup percentage to obtain the desired profit.

A) margin pricing model
B) cost markup pricing model
C) total cost analysis model
D) penetration pricing model
E) revenue pricing model

Question 47

All of the following are opportunities for supplier cost reductions except ____.

A) process capability
B) plant utilization
C) learning-curve effect
D) ability to vote out the supplier's labor union
E) management capability

Question 48

The ____ presents pricing for individual products and services that is set to enhance the sales of the overall product line rather to ensure the profitability of each product.

A) price volume model
B) competition pricing model
C) market skimming model
D) promotional pricing model
E) revenue pricing model

Question 49

The emphasis of the ____ is on obtaining sufficient current revenue to pay for operating cost rather than on profit.

A) price volume model
B) promotional pricing model
C) revenue pricing model
D) market skimming model
E) competition pricing model

Question 50

A ____ is an analytical tool that identifies the primary external forces that are causing prices to either increase or decrease.

A) market analysis
B) total cost analysis
C) cost analysis
D) make-buy analysis
E) target price analysis

Question 51

In the ____,the desired profit is added to the estimated costs.

A) penetration pricing model
B) revenue pricing model
C) margin pricing model
D) rate-of-return pricing model
E) TCO model

Question 52

In the ____,the supplier analyzes the market to find the combination of price per unit and quantity of sales that maximizes its profit on the assumption that (1)lowering the price per unit will result in more units being sold,and (2)greater volume will spread the indirect cost over more units.

A) price volume model
B) sole sourcing model
C) market-share model
D) market skimming model
E) promotional pricing model

Question 53

In the ____,prices are set to achieve a high profit on each unit by selling to supply managers who are willing to pay a higher price because of a lack of supply management sophistication or who are willing to pay for products or services of perceived higher value.

A) market skimming model
B) revenue pricing model
C) promotional pricing model
D) price volume model
E) competition pricing model

Question 54

In a/an ____ market structure,price is solely a function of the forces of supply and demand.

A) monopolistic
B) oligopolistic
C) communistic
D) perfect competition
E) Price is never solely a function of supply and demand, regardless of market structure.

Question 55

In the ____,pricing is based on the assumption that long-run profitability depends on the market share obtained by the supplier.

A) price volume model
B) market-share model
C) open market model
D) target pricing model
E) market skimming model

Question 56

____ applies the price/cost equation across multiple processes that span two or more organizations across a supply chain.

A) Make-buy analysis
B) Price analysis
C) Cost analysis
D) Target costing
E) Total cost analysis

Question 57

In ____,a buyer may use internal engineering estimates about what it costs to produce an item,rely on historical experience and judgment to estimate costs,or review public financial documents to identify key cost data about the seller.

A) reverse price analysis
B) TCO analysis
C) penetration pricing
D) using the PPI
E) competition pricing

Question 58

In the ____,the supplier establishes a price that will provide a profit margin that is a predetermined percentage of the quoted price.

A) rate-of-return pricing model
B) margin pricing model
C) market-share model
D) competition pricing model
E) target costing model

Question 59

The ____ strategy is based on determining the highest price that can be offered to the supply manager that will still be lower than the price offered by competitors.

A) penetration pricing model
B) market-share model
C) cash discount
D) revenue pricing model
E) competition pricing model

Question 60

Which of the following is not one of the categories of products in the strategic cost management matrix?

A) Commodities.
B) One-time buys.
C) Critical products.
D) Unique products.
E) Generics.

Question 61

In the case of a service,____ include all costs associated with the performance of the service that are not included in the purchase price.

A) invoice costs
B) usage costs
C) acquisition costs
D) end of life costs
E) interest costs

Question 62

In the case of a product,____ includes all costs associated with converting the purchased part/material into the finished product and supporting it through its usable life.

A) purchase price
B) acquisition costs
C) end of life costs
D) opportunity costs
E) usage costs

Question 63

____ include all costs incurred when a product,service,or capital equipment reaches the end of its useful life,net of amounts received from the sale of remaining product or equipment (salvage value).

A) Net present value costs
B) Usage costs
C) Purchase price
D) End of life costs
E) Opportunity costs

Question 64

____ is defined as the present value of all costs associated with a product,service,or capital equipment that are incurred over its expected life.

A) Cash flow analysis
B) Total cost of ownership
C) Make-buy analysis
D) Revenue pricing
E) Competition pricing

Question 65

Which of the following statements regarding cost-savings sharing is false?

A) Cost-savings 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 (i.e., usually the purchaser) seeks to capture all cost savings resulting from a supplier's improvement effort.

Question 66

Which of the following is not one of the common assumptions typically used in break-even analysis?

A) Fixed costs are never considered.
B) Fixed costs remain constant over the period and volumes considered.
C) Variable costs fluctuate in a linear fashion.
D) Revenues vary directly with volume.
E) Break-even analysis considers total costs rather than average costs.

Question 67

____ includes all costs associated with bringing the product,service,or capital equipment to the customer's location.

A) Purchase price
B) Opportunity costs
C) Acquisition costs
D) Usage costs
E) End of life costs

Question 68

With ____,a product's allowable cost is strictly a function of what a market segment is willing to pay less the profit goals for the product.

A) penetration pricing
B) target pricing
C) market-share pricing
D) competition pricing
E) revenue pricing

Question 69

Which of the following is not one of the important factors to consider when building a TCO model?

A) Focus on the small and easily measurable costs first.
B) Building a TCO can be costly and time-intensive activity.
C) Work in a team.
D) Focus on the big costs first.
E) When considering global sourcing, consider all of the relevant labor, quality, logistics, and import costs associated with the total supply chain.

Question 70

____ includes both cost and revenue data for an item to identify the point where revenue equals cost,and the expected profit or loss at different production volumes.

A) Make-buy analysis
B) TCO
C) Break-even analysis
D) Market-share pricing
E) None of these choices.

Question 71

____ is the amount paid to the supplier for the product,service,or capital equipment.

A) Acquisition cost
B) Usage cost
C) End of life cost
D) Purchase price
E) Opportunity cost

Question 72

All of the following are examples of total cost of ownership categories except ____.

A) purchase price
B) acquisition costs
C) sales, general, and administrative overhead costs
D) usage costs
E) end of life costs

Question 73

A/An ____ is defined as the cost of the next best alternative.

A) operating cost
B) purchase price
C) net present value
D) usage cost
E) opportunity cost

Question 74

In the case of capital equipment,____ are all costs 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

Question 75

Which of the following is not an item which 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.