MGSC 487 FINAL EXAM STUDY GUIDE
Fair Price - Answers - the lowest price that assures continuous supply. Fair price to one
seller may be higher than a fair price to another for an equal item
Fair & Just Price - Answers - Accuracy in making the judgment depends on: past
experience, knowledge of production processes, costs of production processes,
logistics costs.
Continuous Supply - Answers - Occurs over the long-run only if the supplier is making a
reasonable profit.
Meaning of Cost - Answers - an amount that has to be paid or spent to buy or obtain
something
Approaches for Establishing Price - Answers - Cost Approach, Market Approach
Cost Approach - Answers - Price is a certain amount over direct costs and allows
contribution to cover indirect costs and some profit. Costs classified as: variable, semi-
variable, fixed.
Market Approach - Answers - Prices are set in the marketplace and are expected to
follow a supply and demand model: Supply High, Cost Low. Supply Low, Cost High.
Options are to live with it or find a way around it:
• Select suppliers who have other incentives.
• Substitute "like" materials
• Outsource (or insource)
• Establish long-term contracts
Government Influence on Pricing - Answers - Production and import quotas, Regulating
buyer and seller behavior, Set prices for government run organizations.
Contract Terminology - Answers - - Firm Fixed Price (FFP)
- Cost Plus Fixed Fee (CPFF)
- Cost No Fee (CNF)
- Cost Plus Incentive Fee (CPIF)
Difference Between Price and Cost - Answers - Cost is the expense that a business
incurs in bringing a product or service to market. Price is the amount a customer pays
for that product or service. The difference between the price that is paid and the cost
that is incurred is the profit the business makes when it sells the item.
, Internal Cost Management - Answers - Process improvement, Supply chain efficiencies
External Cost Management - Answers - Negotiation, Strategic Cost Management
Tools for Strategic Cost Management - Answers - ABC Analysis (Pareto Analysis),
Portfolio Analysis (Quadrant Analysis)
ABC Analysis (Pareto Analysis) - Answers - Dividing Total Spend into broad categories.
"A" = High $, "B" = Medium $, "C" = Low $.
Portfolio Analysis (Quadrant Analysis) - Answers - Category management planning tool
Total Cost of Ownership Model - Answers - - Admin
- Follow-up
- Expediting
- Transportation
- Inspection and Test
- Rework
- Scrap
- Warranty
- Holding Costs
Designing Cost Out - Answers - Target Pricing, Learning Curve, VA/VE, ABC
Target Pricing - Answers - Designing cost out vs reducing costs after production
established. Establish selling price, Subtract normal profit, Target cost. Subdivide into
most categories: manufacturing, overhead, material, services, etc.
Learning Curve - Answers - The more we make, the more proficient we become.
Logarithmic in nature, every time volume doubles, time to produce 1 unit drops by some
%. Difficult to choose right curve, not universally applicable, "easier" to apply to direct
labor scenarios.
VA/VE - Answers - Systematic approach:
VA = Value Add - redesign effort.
VE = Value Engineering - upfront design effort. Focus on the function of the part.
Value = Function / Cost
ABC - Answers - Activity Based Costing, essentially tries to turn indirect costs into direct
costs (Transactional Process)
Interest Based vs Positional Based Negotiation - Answers - Interest takes into account
the many needs of the various parties. Positional is the two sisters, I am older,
therefore...
Creating Win-Win - Answers - 1.) Separate people from the problem
Fair Price - Answers - the lowest price that assures continuous supply. Fair price to one
seller may be higher than a fair price to another for an equal item
Fair & Just Price - Answers - Accuracy in making the judgment depends on: past
experience, knowledge of production processes, costs of production processes,
logistics costs.
Continuous Supply - Answers - Occurs over the long-run only if the supplier is making a
reasonable profit.
Meaning of Cost - Answers - an amount that has to be paid or spent to buy or obtain
something
Approaches for Establishing Price - Answers - Cost Approach, Market Approach
Cost Approach - Answers - Price is a certain amount over direct costs and allows
contribution to cover indirect costs and some profit. Costs classified as: variable, semi-
variable, fixed.
Market Approach - Answers - Prices are set in the marketplace and are expected to
follow a supply and demand model: Supply High, Cost Low. Supply Low, Cost High.
Options are to live with it or find a way around it:
• Select suppliers who have other incentives.
• Substitute "like" materials
• Outsource (or insource)
• Establish long-term contracts
Government Influence on Pricing - Answers - Production and import quotas, Regulating
buyer and seller behavior, Set prices for government run organizations.
Contract Terminology - Answers - - Firm Fixed Price (FFP)
- Cost Plus Fixed Fee (CPFF)
- Cost No Fee (CNF)
- Cost Plus Incentive Fee (CPIF)
Difference Between Price and Cost - Answers - Cost is the expense that a business
incurs in bringing a product or service to market. Price is the amount a customer pays
for that product or service. The difference between the price that is paid and the cost
that is incurred is the profit the business makes when it sells the item.
, Internal Cost Management - Answers - Process improvement, Supply chain efficiencies
External Cost Management - Answers - Negotiation, Strategic Cost Management
Tools for Strategic Cost Management - Answers - ABC Analysis (Pareto Analysis),
Portfolio Analysis (Quadrant Analysis)
ABC Analysis (Pareto Analysis) - Answers - Dividing Total Spend into broad categories.
"A" = High $, "B" = Medium $, "C" = Low $.
Portfolio Analysis (Quadrant Analysis) - Answers - Category management planning tool
Total Cost of Ownership Model - Answers - - Admin
- Follow-up
- Expediting
- Transportation
- Inspection and Test
- Rework
- Scrap
- Warranty
- Holding Costs
Designing Cost Out - Answers - Target Pricing, Learning Curve, VA/VE, ABC
Target Pricing - Answers - Designing cost out vs reducing costs after production
established. Establish selling price, Subtract normal profit, Target cost. Subdivide into
most categories: manufacturing, overhead, material, services, etc.
Learning Curve - Answers - The more we make, the more proficient we become.
Logarithmic in nature, every time volume doubles, time to produce 1 unit drops by some
%. Difficult to choose right curve, not universally applicable, "easier" to apply to direct
labor scenarios.
VA/VE - Answers - Systematic approach:
VA = Value Add - redesign effort.
VE = Value Engineering - upfront design effort. Focus on the function of the part.
Value = Function / Cost
ABC - Answers - Activity Based Costing, essentially tries to turn indirect costs into direct
costs (Transactional Process)
Interest Based vs Positional Based Negotiation - Answers - Interest takes into account
the many needs of the various parties. Positional is the two sisters, I am older,
therefore...
Creating Win-Win - Answers - 1.) Separate people from the problem
