Chapter 10 – Cost Management

Virtually every organisation wants to reduce the overall cost of purchases. Is this:
1. true?
2. neither true nor false?
3. false?
What is, generally, understood by the ‘value’ of an item?
1. its price
2. the total cost of ownership
3. perceived benefits that it brings
4. ratio of perceived benefits over price
5. ratio of price over total cost of ownership
With cost reduction, an organisation should not transfer some of its own costs to either its suppliers or its customers, but it should look for ways of reducing the overall costs. Is this:
1. true?
2. sometimes true?
3. false?
On which type of product should purchasing put most of their effort for cost reduction?
1. generics
2. commodities
3. unique products
4. critical products
Price analysis is the process of comparing a supplier’s prices with external price benchmarks. Is this:
1. true?
2. partly true?
3. false?
Which of the following factors is unlikely to be included in a price analysis?
1. supply and demand
2. market structure
3. production costs
4. economic conditions
5. price strategy of the seller
In market-driven pricing models, the price is set by prevailing market conditions. Is this:
1. true?
2. sometimes true?
3. false?
Which of the following is not a common variation on a market-driven pricing model?
1. market share model
2. price balance model
3. producer price index model
4. competition pricing model
5. revenue pricing model
Which of the following is not a common variation on a market-driven pricing model?
1. cash discount model
2. price volume model
3. market skimming model
4. fixed margins model
5. promotional pricing model
In cost-based pricing models, the price is set by actual production costs. Is this:
1. true?
2. sometimes true?
3. false?
Which of the following is not a common variation on cost-based pricing?
1. margin pricing model
2. cost mark-up pricing model
3. revenue pricing model
4. rate-of-return pricing model
5. reverse pricing model
A reverse price analysis gives a buyer an accurate measure of an item’s production cost. Is this
1. true?
2. sometimes true?
3. false?
With a reverse price analysis, which of the following factors should buyers also consider?
1. process capability
2. supplier’s workforce
3. learning curve effects
4. facilities utilisation
5. management capability
6. all of the above
A break-even analysis finds the number of units that must be processed, to recover all fixed and variable costs. Is this:
1. true?
2. partly true?
3. false?
Which of the following is not an assumption of break-even analyses?
1. revenue is directly proportional to the volume of sales
2. costs are either fixed or variable
3. economies of scale mean that fixed costs change with production levels
4. variable costs are directly proportional to the production level
5. all costs are known with reasonable accuracy
The total cost of ownership is the present value of all costs associated with a product, that are incurred over its expected life. Is this
1. true?
2. sometimes true?
3. false?
Which of the following is not usually included in the total cost of ownership?
1. purchase price
2. acquisition cost
3. usage cost
4. overhead costs
5. end-of-life cost
Which of the following is not a normal step, in building a total cost of ownership model?
1. build a process map of all activities involving the item
2. look for improvements in the process
3. use the process map to identify all cost elements
4. gather data and put values to the cost elements
5. develop a timetable of costs over the items life
6. discount costs to present values and find the sum
The most effective way of reducing costs is not usually through haggling with suppliers, but through collaborative efforts to improve operations. Is this:
1. true?
2. often true?
3. false?
Value engineering assumes that the price of a new product is not a consequence of its design and production process, but is a basic input to the design. Is this:
1. true?
2. neither true nor false?
3. false?
Value analysis examines all the parts of a product, to make sure that it fulfills its intended function at the lowest total cost. Is this:
1. true?
2. neither true nor false?
3. false?
Which of the following is unlikely to be a question asked in value analysis?
1. Are design or quality specifications excessive for our customers‘ requirements?
2. Does the product need all its features and parts?
3. Can a standard component replace a custom-made one?
4. Do our customers pass the product on properly to following tiers of customers?
5. Is logistics organised to give the lowest costs?
6. Are we making an item internally that we could buy for less?
Which of the following is not a normal step in value analysis?
1. gather information
2. speculate
3. analyse
4. invest
5. recommend and execute
6. summarise and follow-up