Question 1

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

Accepted Answer

The opportunity cost of not taking the supplier's cash discount is usually higher because the implied annual interest rate of forgoing the discount often exceeds the cost of short-term borrowing to take advantage of the discount.

Question 2

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

Accepted Answer

When supply is greater than demand, there is an excess of goods and services available for purchase. This tends to put pressure on sellers to lower their prices in order to attract buyers, leading to a buyer's market.

Question 3

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 for purchased products and services can have an impact on the end customer's perception of value provided by the organization. If the price is perceived as too high for the quality of the product or service received, the customer may feel that the value provided was not worth the cost. On the other hand, if the price is perceived as reasonable or even low for the quality of the product or service received, the customer may feel that the value provided was excellent.

Question 4

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

Accepted Answer

When purchasers set their specifications for a product or service, they can impact its price. This is because the specifications they set may require more expensive materials or methodologies to fulfill, leading to a higher cost for the final product or service. Alternatively, if purchasers prioritize cost savings over specific features or qualities, suppliers may be able to offer a lower price by reducing the scope of the specifications or finding more cost-effective ways to meet them.

Question 5

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

Accepted Answer

Economic conditions often play a major role in determining whether a market is favorable to the seller or purchaser. During times of economic growth and low unemployment, sellers may be able to demand higher prices and have more negotiating power in transactions, while during times of economic recession or high unemployment, purchasers may have more bargaining power and sellers may need to lower prices or make other concessions to complete a sale.

Question 6

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

Accepted Answer

Price analysis is based solely on the seller's price, without any consideration of the cost of production. It doesn't take into account factors such as labor, raw materials, and overhead costs.

Question 7

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.

Accepted Answer

A quantity discount may lower the purchase price per unit, but a buyer should also consider the impact on the total cost of purchasing a larger quantity, such as increased storage and handling costs.

Question 8

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 9

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.

Accepted Answer

Some sellers use internal cost analysis to set prices, while others use competition as a benchmark for pricing.

Question 10

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

Accepted Answer

Strategic cost management approaches can vary depending on the stage of the product life cycle. For example, during the introduction stage, companies may have higher research and development costs, while during the maturity stage, companies may focus on cost-cutting measures to remain competitive.

Question 11

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 12

In general, low-value generics in which a competitive market with many potential suppliers exists should emphasize total delivered price.

Accepted Answer

When there are many suppliers offering similar low-value generic products, the emphasis should be placed on offering the lowest total delivered price to remain competitive.

Question 13

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.

Question 14

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

With outsourcing, companies rely heavily on their suppliers for materials or services, resulting in the majority of the cost of goods sold being driven by external parties.

Question 15

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

This statement is true. In order to remain profitable in the long run, a seller must price their products or services in a way that covers all of their variable costs, makes a contribution towards fixed costs, and provides some level of profit. The specific cost structure of the seller will play a large role in determining the pricing strategy they choose.

Question 16

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 17

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

As a product reaches its end of life, supply management should consider the potential value of environmental initiatives such as remanufacturing, recycling, or refurbishing products instead of ignoring them. This can help reduce waste and create a circular economy.

Question 18

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

Accepted Answer

The price charged by a seller is based on various factors such as market demand, competition, and perceived value by customers, in addition to actual costs. Therefore, the price may not always directly correspond to the costs incurred by the seller.

Question 19

The major benefits from cost-reduction efforts occur when supply management is not involved in the new-product/service development cycle.

Accepted Answer

Supply management plays a critical role in the new-product/service development cycle as they determine the cost of materials, negotiate with suppliers, and identify opportunities for cost savings. Therefore, involving supply management in cost-reduction efforts during the development cycle can result in significant cost savings.

Question 20

The market-share model is also known as the penetration pricing model and is an aggressive pricing approach for efficient producers because price is a direct function of cost.

Accepted Answer

The statement is true. The market-share model, also known as the penetration pricing model, is an aggressive pricing approach where price is directly related to the cost of production. This model aims to capture market share by offering products at a lower price than competitors.

Quiz 11: Strategic Cost Management