Chapter 15 — Purchasing Law and Ethics
1. Purchasing activities are concerned with the laws regarding contracts and the laws regarding agency, the majority of
which concern contract laws.
a.
True
b.
False
True
Easy
Analytic
2. Contracts between two or more parties do not allow the shifting of risk between the entities and do not constitute the
foundation and fabric for every type of supply chain relationship.
a.
True
b.
False
False
Moderate
Analytic
3. The laws of contracts are concerned with governing the relationship of principals and agents.
a.
True
b.
False
False
Easy
Ethics
4. In most cases, the sales representative is a general agent who can solicit orders and change price, terms, or conditions as
well.
a.
True
b.
False
False
Easy
Ethics
5. The purchasing agent is a general agent with broad authority to change prices, terms, and conditions.
a.
True
b.
False
True
Moderate
6. The purchasing agency relationship is created between the employer and employee when the company hires an
individual to perform the purchasing job.
a.
True
b.
False
True
Easy
Analytic
7. From a legal perspective, purchasing managers do not have a fiduciary obligation to act in the best interests of their
employer.
a.
True
b.
False
False
Easy
Ethics
8. In agreeing to perform the purchasing duties for the employer, purchasing managers imply that they will never make a
mistake.
a.
True
b.
False
False
Easy
Analytic
9. Exceeding both actual and apparent authority can have dire consequences; an individual may be held directly liable by
the supplier or other third party.
a.
True
b.
False
True
Moderate
Analytic
10. Purchasing managers cannot be held personally liable for their damaging and illegal activities even if they perform
them with the authority of their firm.
a.
True
Analytic
Chapter 15 — Purchasing Law and Ethics
b.
False
False
Easy
Ethics
11. A good rule of thumb is to remember that purchasers must always act in the best interests of their employer.
a.
True
b.
False
True
Easy
Analytic
12. Since people make agreements every day, every agreement can be considered a contract.
a.
True
b.
False
False
Moderate
Analytic
13. A contract can exist only when there is an agreement resulting from both an offer and an acceptance.
a.
True
b.
False
True
Easy
Analytic
14. If the terms of the buyer’s purchase order and the supplier’s acceptance or acknowledgement conflict, all of the terms
of both the purchase order and the acceptance become part of the resulting contract including the conflicting terms and
conditions.
a.
True
b.
False
False
Moderate
Analytic
15. The use of force or coercion to reach an agreement is acceptable in signing a contract, because both parties do not
have to enter into the agreement on their own free will.
a.
True
b.
False
False
Moderate
Analytic
16. If the primary purpose of the contract is legal, but some terms contained within the contract are not, then the contract
may or may not itself be illegal depending on the seriousness of the illegal terms and the degree to which the legal and
illegal terms can be separated.
a.
True
b.
False
True
Moderate
Ethics
17. A purchase order can be an offer, acceptance, or counteroffer, depending on the circumstances.
a.
True
b.
False
True
Easy
Analytic
18. When the contract is reduced to writing, the written document itself is the actual contract and not simply hard
evidence of the existence of the underlying contractual relationship.
a.
True
b.
False
False
Easy
Analytic
19. Either buyers or sellers can arbitrarily cancel or default on their contracts with impunity.
a.
True
b.
False
False
Easy
20. Cancellation by mutual consent indicates that the cancellation of a previously agreed-upon contract automatically
leads to legal action.
a.
True
b.
False
False
Easy
Ethics
21. If both parties mutually agree to terminate the contract, then they have, in effect, created another contract with the
intent of nullifying the first agreement.
a.
True
b.
False
True
Easy
Analytic
22. A breach of contract may entitle the offended party to certain remedies or damages.
a.
True
b.
False
True
Easy
Analytic
23. Buyers should avoid the practice of routinely tolerating suppliers that breach purchase contracts because doing so may
result in the buyer forfeiting the right to legal action.
a.
True
b.
False
True
Moderate
Analytic
24. The concept of damages in the UCC is based on the remedy of a party being “made whole.”
a.
True
Analytic
Chapter 15 — Purchasing Law and Ethics
b.
False
True
Easy
Analytic
25. In order for a firm to recover lost profits in a breach of contract, the firm must produce credible evidence that it would
have made such profits.
a.
True
b.
False
True
Easy
Analytic
26. Because the UCC calls for full compensation for a party that is a victim of breach of contract, attorneys’ fees are
collectible.
a.
True
b.
False
False
Moderate
Analytic
27. The UCC allows the purchaser to only reject the entire shipment for cause.
a.
True
b.
False
False
Easy
Analytic
28. When the goods delivered by the supplier are actually rejected by the purchaser because of nonconformance, the
purchaser must provide notice to the supplier within 24 hours.
a.
True
b.
False
False
Easy
Analytic
29. Acceptance of the contracted goods by the purchaser means that ownership of the goods has been transferred.
a.
True
b.
False
True
Easy
Analytic
30. Generally, honest mistakes by a single party to the contract will void the contract.
a.
True
b.
False
False
Easy
Analytic
31. Contractual mistakes are covered under the UCC.
a.
True
b.
False
False
Easy
Analytic
32. For the most part, the UCC is a “gap filler” and is only pertinent if the parties themselves do not supply a contract
term, or the term is left open.
a.
True
b.
False
True
Moderate
Analytic
33. It is illegal for sellers to exaggerate the merits of their products during their sales pitch.
a.
True
b.
False
False
Analytic
a.
True
b.
False
False
34. The costs and penalties for patent infringement are so mild that most standard purchasing agreements do not contain
an appropriate patent indemnification clause.
a.
True
b.
False
False
Easy
Analytic
35. Under the UCC, the risk of loss is with the buyer until the title passes to the seller.
a.
True
b.
False
False
Easy
Analytic
36. Unless the parties specify differently, the term “FOB” delineates the point at which the supplier is responsible for
freight charges and where the purchaser assumes title to the shipment.
a.
True
b.
False
True
Moderate
Analytic
37. Inventors seeking to expand their patent protection to other countries must file appropriate patent applications in each
country in which protection is desired.
a.
True
b.
False
True
Easy
Analytic
Chapter 15 — Purchasing Law and Ethics
Easy
Analytic
39. Copyright is automatically assumed.
a.
True
b.
False
True
Easy
Analytic
40. Resources as diverse as formulas, supplier and customer lists, procedures, and training programs could all be regarded
as trade secrets.
a.
True
b.
False
True
Easy
Analytic
41. Price fixing, dividing territories among competitors, and agreements that limit the supply of a commodity are
violations of the Foreign Corrupt Practices Act.
a.
True
b.
False
False
Easy
Ethics
42. The Federal Trade Commission Act makes price discrimination illegal and prohibits sellers from exclusive
arrangements with purchasers or product distributors.
a.
True
b.
False
False
Easy
Ethics
43. Ethics have their basis in the field of philosophy and identify common principles associated with appropriate versus
inappropriate actions, moral duty, and obligation.
Chapter 15 — Purchasing Law and Ethics
a.
True
b.
False
True
Moderate
Ethics
44. Accepting a supplier’s outside gifts and favors in exchange for special treatment is not a form of corruption.
a.
True
b.
False
False
Easy
Ethics
45. Accepting gifts and favors from a supplier is the most common ethical infraction involving buyers.
a.
True
b.
False
True
Easy
46. Suppliers seldom attempt to influence the decisions of supply professionals.
a.
True
b.
False
False
Easy
Ethics
47. Executive management sets the ethical code of behavior within a firm.
a.
True
b.
False
True
Easy
Analytic
48. A firm should not encourage suppliers to report instances of unethical behavior by anyone within the buying firm.
Chapter 15 — Purchasing Law and Ethics
a.
True
b.
False
False
Easy
Ethics
49. _____ essentially determines the nature of agreements that are enforceable and create legal rights between the parties.
a.
b.
c.
d.
e.
Easy
Ethics
50. _____ deals with the role of managers as individual representatives acting on behalf of their organizations.
a.
b.
c.
d.
e.
Easy
Ethics
51. A/An _____ is a person or entity who has been authorized to act on behalf of some other person or entity.
a.
principal
b.
manager
c.
agent
d.
employee
e.
sales representative
Easy
Analytic
52. The _____ is typically considered a _____ for the buying firm.
a.
purchasing manager/buyer…..general agent
b.
sales representative…..general agent
c.
purchasing manager/buyer…..special agent
d.
All of the above.
e.
None of the above.
Moderate
Analytic
53. _____ stems from the instructions and granting of authority to the purchasing manager via the job description
provided by the employer.
a.
Apparent authority
b.
Fiduciary responsibility
c.
Mutual assent
d.
Personal liability
e.
Actual authority
Easy
Analytic
54. _____ is that level of authority perceived by the seller to be available to the purchasing manager.
a.
Actual authority
b.
Apparent authority
c.
Consideration
d.
Personal liability
e.
Transparent authority
Easy
Analytic
55. When a non-agent, such as a maintenance supervisor, engineer, or finance analyst makes a commitment with a
supplier, this is termed _____.
a.
b.
c.
d.
e.
56. _____ is defined as that body of the law that refers to how business firms (parties) enter into contracts with each other,
execute contracts, and remedy problems that arise in the process.
a.
b.
c.
d.
e.
Moderate
Ethics
57. A/An _____ is a set of promises between two or more parties the performance of which the law expects, the breach of
which the law provides remedies.
a.
offer
b.
agreement
c.
acceptance
d.
contract
e.
breach
Easy
Analytic
58. Which of the following is not one of the essential elements to an enforceable contract?
a.
b.
c.
d.
e.
Easy
Ethics
59. A/An _____ is a proposal or expression by one person that he or she is willing to do something for certain terms.
a.
consideration
Easy
Analytic
Chapter 15 — Purchasing Law and Ethics
b.
habeas corpus
c.
acceptance
d.
clause
e.
offer
Easy
Analytic
60. Betty goes into Mimi’s Wholesale Video Store and says to Mimi, “I want to buy 500 DVDs of the Last Vegas movie
from you. I will pay you $10 for each DVD.” This is an example of [a/an] _____.
a.
acceptance
b.
breach
c.
offer
d.
due diligence
e.
conditional offer
Moderate
Analytic
61. _____ is something of value in the formation of the contract that gives it legal validity.
a.
Apparent authority
b.
Actual authority
c.
Implied authority
d.
Acceptance
e.
Consideration
Easy
Analytic
62. _____ takes place when the offeree incurs a legal detriment in response to the offeror’s offer.
a.
Consideration
b.
Acceptance
c.
Rejection
d.
Anticipatory breach
e.
None of the above.
Easy