Chapter 11 — Strategic Cost Management
50. 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
51. 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
52. 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
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
Chapter 11 — Strategic Cost Management
c.
promotional pricing model
d.
price volume model
e.
competition pricing model
54. 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
55. In the _____, suppliers are typically concerned about capacity utilization, covering fixed cost, and retaining skilled
labor during market slowdowns, when they are willing to reduce their prices until market conditions change.
a.
b.
c.
d.
e.
56. The _____ presents pricing for individual products and services that is set to enhance the sales of the overall product
line rather than 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
57. 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.
b.
c.
d.
e.
Easy
Analytic
58. 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
Easy
Analytic
59. In the _____, the supplier establishes a price that will provide a profit margin that is a predetermined percentage of the
quoted price, i.e., not a percentage of cost.
a.
rate-of-return pricing model
b.
margin pricing model
c.
market-share model
d.
competition pricing model
e.
target costing model
Easy
Analytic
60. In the _____, the desired profit is added to the estimated costs.
a.
penetration pricing model
b.
revenue pricing model
c.
margin pricing model
Analytic
Chapter 11 — Strategic Cost Management
d.
rate-of-return pricing model
e.
TCO model
Moderate
Analytic
61. In _____, a purchaser may have to 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
Moderate
Analytic
62. 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
Easy
Analytic
63. _____ 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
Easy
Analytic
64. _____ 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 the above.
Easy
Analytic
65. 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.
Moderate
Analytic
66. The _____ is an approach to estimating the different components that make up the supplier’s per unit price per unit of
product or service, i.e., what the product or service should cost in a theoretical world.
a.
b.
c.
d.
e.
Moderate
Analytic
67. In should-cost modeling, the _____ provides a high level view of the supply chain, and then the supplier’s primary
cost elements are broken down into material, labor, overhead, transportation freight, inventory cost, maintenance costs,
and others.
a.
PPI
b.
value stream map
Chapter 11 — Strategic Cost Management
c.
target price
d.
product specification
e.
None of the above.
Moderate
Analytic
68. In should-cost modeling, _____ are any components not under the direct control of the buying or supplying company
but those that have a significant influence on the outcome being modeled.
a.
direct costs
b.
assumption variables
c.
overhead costs
d.
transportation modes
e.
decision variables
Moderate
Analytic
69. In should-cost modeling, _____ include those components the company has direct control or influence over.
a.
direct costs
b.
assumption variables
c.
variable costs
d.
decision variables
e.
commodity prices
Easy
Analytic
70. In should-cost modeling, _____ refers to the integrity and transparency of the cost model created.
a.
direct cost
b.
value stream maps
c.
make-or–buy analysis
d.
fixed cost
e.
auditability
Analytic
71. _____ 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
Easy
Analytic
72. All of the following are examples of broad 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
Easy
Analytic
73. In TCO, _____ 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
Moderate
Analytic
74. In TCO, _____ 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
Chapter 11 — Strategic Cost Management
e.
end of life costs
75. In TCO for a product, _____ include(s) 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
76. In TCO for 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 costsend of life costs
e.
interest costs
77. In TCO for 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
78. _____ include(s) 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 the equipment (salvage value).
a.
Net present value costs
b.
Usage costs
c.
Purchase price
d.
End-of–life costs
e.
Opportunity costs
Easy
Analytic
79. 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
Easy
Analytic
80. 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 a costly and time-intensive activity.
c.
Work in a team.
d.
Make sure to obtain senior management buy–in before embarking on a full-fledged TCO.
e.
When considering global sourcing, consider all of the relevant labor, quality, logistics, and import costs
associated with the total supply chain.
Moderate
Analytic
81. 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.
should-cost modeling
e.
revenue pricing
Chapter 11 — Strategic Cost Management
82. Which of the following statements regarding cost-savings sharing is false?
a.
Cost-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 (usually the purchaser) seeks to capture all cost
savings resulting from a supplier’s improvement effort.
83. Which of the following is not an item or product that 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.