Question 1

A seller's cost structure affects price because, 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.

Accepted Answer

A seller needs to cover all their costs and make a profit in order to stay in business in the long run. Therefore, the cost structure of the seller determines the minimum price they need to charge in order to achieve this goal.

Question 2

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

Accepted Answer

Multiple sourcing involves using several suppliers, which typically reduces volume with any single supplier and may not lead to lower prices due to higher volumes. It aims to reduce risk and dependency on one supplier rather than leverage volume for price reductions.

Question 3

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.

Accepted Answer

This is because the cost-based approach takes into account the actual costs incurred by the supplier in producing the item, which may include direct labor, indirect labor, and specialized expertise. If the supplier is contributing high added value in these areas, then a cost-based approach can be used to determine the appropriate pricing for the item. However, if the supplier is not adding significant value in these areas and the item is a commodity or highly standardized, a market-based approach to pricing may be more appropriate.

Question 4

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

Accepted Answer

Pricing strategies may include markups, discounts, and other factors that are not directly tied to the actual costs of producing or selling a product or service. Additionally, sellers may consider factors such as competition, consumer demand, and perceived value when setting prices.

Question 5

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

Accepted Answer

These industries are not monopolies because they have multiple competing companies within them, making them more accurately described as oligopolies or competitive markets, not monopolies.

Question 6

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

Accepted Answer

Under penetration pricing, the product is sold at a low price initially to gain market share. There is no disaggregation of the product into subsystems and target costs.

Question 7

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

Accepted Answer

Economic conditions such as supply and demand, consumer confidence, and interest rates can greatly affect whether a market is favorable to the seller or to the purchaser. For example, in a seller's market, there is high demand and low supply, leading to higher prices and more favorable conditions for the seller. In a buyer's market, there is low demand and high supply, leading to lower prices and more favorable conditions for the purchaser.

Question 8

Most large firms base purchase decisions and evaluate suppliers on only the cost elements of unit price, transportation, and tooling.

Accepted Answer

Most large firms consider a broader range of factors beyond just cost elements, such as quality, reliability, service, and the supplier's reputation, when making purchase decisions and evaluating suppliers.

Question 9

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

Accepted Answer

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

Question 10

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

Accepted Answer

When supply exceeds demand, sellers often have to lower their prices to attract buyers, leading to a buyer's market where prices move downward.

Question 11

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

Accepted Answer

In a traditional pricing approach, the selling price is determined by adding the desired profit to the cost of the product, not by subtracting the profit from the selling price.

Question 12

The Consumer Price Index (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.

Accepted Answer

The Consumer Price Index (CPI) measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services, not just material commodity prices. It does not specifically track material price movements from quarter to quarter based on a sample of industrial purchasers, nor is it scaled to a base year of 1988; the base year can vary and is periodically updated.

Question 13

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

Accepted Answer

The way suppliers purchase their goods and services can have a direct impact on purchase price. If they are able to negotiate better deals or find cost-effective sourcing methods, they may be able to offer a lower purchase price to their customers.

Question 14

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

Accepted Answer

The price paid by customers can have a direct impact on their perception of the value provided by an organization. If customers feel that they are paying too much for a product or service, they may perceive the value to be lower than if they had paid a fair price. On the other hand, if customers feel they are getting a good deal, they may perceive the value to be higher. Therefore, price can play a significant role in shaping customers' perceptions of an organization's value proposition.

Question 15

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

Accepted Answer

Purchasers have a significant impact on the price of a product or service as they set the specifications for the product or service which dictates its cost. The set specifications may include the quality, quantity, features, delivery time, and other parameters which would impact the price.

Question 16

With the increased amount of outsourcing occurring in every global company today, the majority of the cost of goods sold is driven by suppliers, which are outside the four walls of an organization.

Accepted Answer

As stated in the sentence, the majority of the cost of goods sold is driven by suppliers who are outside the organization. This suggests that outsourcing is a contributing factor to the cost of goods sold.

Question 17

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

Accepted Answer

The answer of Traditional pricing practices have supported cooperative efforts...

Question 18

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.

Accepted Answer

Supply management should consider environmental initiatives such as remanufacturing, recycling, or refurbishing products as they reach the end of their life cycle. This can add value to the organization by reducing waste and potentially generating revenue from the sale of remanufactured or refurbished products.

Question 19

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

Accepted Answer

A cost-based approach to determining price is not always appropriate for all purchased items. Factors such as market demand and competition can also play a role in determining the optimal price for a product or service.

Question 20

Building a TCO model is an easy task.

Accepted Answer

Building a TCO model requires a significant amount of effort and expertise to accurately capture all the costs associated with an IT project or investment, and requires a deep understanding of the organization's business processes, technology infrastructure, and financial accounting. It involves calculating not only the immediate costs of hardware, software, and implementation, but also ongoing operating costs, maintenance and support costs, and potential costs of downtime, cybersecurity breaches, and other risks. Therefore, building a TCO model is not an easy task.

Quiz 11: Strategic Cost Management