SCMN 3730 EXAM 2 PRACTICE EXAM
– QUESTIONS MERGED WITH
CORRECT COMPLETE SOLUTIONS ||
ALREADY GRADED A+ || 2026-2027
LATEST UPDATE!!!
What are the 2 obstacles of complete contracts? - ANSWER-High
transaction costs, high enforcement (or verification) costs
What is the question for the principal-Agent Problem? - ANSWER-
When an organization outsources some activity to a supplier, what are
some of the risks?
Principal - ANSWER-person whom the action affects (e.g. buyer or
employer)
Agency Relationship - ANSWER-One person's welfare depends on
what another person does
Agent - ANSWER-Person who acts (e.g. sellers or employees)
,What is the biggest pitfall in global commerce? - ANSWER-self-interest
What are the 4 examples of Fixed Price Contracts? - ANSWER-1. Firm-
Fixed Price
2. Fixed-Price with Escalation
3. Fixed-Price with Redetermination
4. Fixed-Price with Incentives
Key characteristics of Firm-Fixed Price - ANSWER-- price stated does
not change
- most basic and easiest contractual mechanism
- supplier bears financial risk in a declining market
- buyer assumed financial risk in a declining market
Key characteristics of Fixed-Price with Escalation - ANSWER-- used for
longer-term contracts where costs are likely to increase
- escalation clauses allow either price increase or decrease
- should be tied to an independent, published third-party index
Key characteristics of Fixed-Price with Redetermination - ANSWER--
used when parties cannot accurately predict costs and quantities
- base price is determined using "best guess" estimates
- at a predetermined future time, buyer and supplier review actual
experience and adjust price
Key characteristics of Fixed-Price with Incentives - ANSWER-- Terms
and conditions allow cost-savings sharing with supplier
, - similar to fixed-price with redetermination contract
- typically utilized under conditions of high unit cost and relatively
long lead times
What are the 4 examples of Cost Based Contracts? - ANSWER-1. Cost
Plus Incentive fee
2. Cost-Sharing
3. Time and Materials
4. Cost Plus Fixed-Fee
Key characteristics of Cost Plus Incentive Fee - ANSWER-- similar to
fixed-price plus incentive except incentive is based on changes in
allowable costs
- may include cost-savings sharing at. predetermined rate
- appropriate when parties are confident of initial target cost
Key characteristics of Cost-Sharing - ANSWER-- costs are shared
between parties on a predetermined basis
- key is identification of operations guidelines, goals, and objectives
- need to spell out expectations clearly
Key characteristics of Time and Materials - ANSWER-- generally used
in plant and equipment maintenance agreements
- costs cannot be determined prior to the actual repair
- based on an agreed upon labor rate
- requires a "not to exceed" amount
– QUESTIONS MERGED WITH
CORRECT COMPLETE SOLUTIONS ||
ALREADY GRADED A+ || 2026-2027
LATEST UPDATE!!!
What are the 2 obstacles of complete contracts? - ANSWER-High
transaction costs, high enforcement (or verification) costs
What is the question for the principal-Agent Problem? - ANSWER-
When an organization outsources some activity to a supplier, what are
some of the risks?
Principal - ANSWER-person whom the action affects (e.g. buyer or
employer)
Agency Relationship - ANSWER-One person's welfare depends on
what another person does
Agent - ANSWER-Person who acts (e.g. sellers or employees)
,What is the biggest pitfall in global commerce? - ANSWER-self-interest
What are the 4 examples of Fixed Price Contracts? - ANSWER-1. Firm-
Fixed Price
2. Fixed-Price with Escalation
3. Fixed-Price with Redetermination
4. Fixed-Price with Incentives
Key characteristics of Firm-Fixed Price - ANSWER-- price stated does
not change
- most basic and easiest contractual mechanism
- supplier bears financial risk in a declining market
- buyer assumed financial risk in a declining market
Key characteristics of Fixed-Price with Escalation - ANSWER-- used for
longer-term contracts where costs are likely to increase
- escalation clauses allow either price increase or decrease
- should be tied to an independent, published third-party index
Key characteristics of Fixed-Price with Redetermination - ANSWER--
used when parties cannot accurately predict costs and quantities
- base price is determined using "best guess" estimates
- at a predetermined future time, buyer and supplier review actual
experience and adjust price
Key characteristics of Fixed-Price with Incentives - ANSWER-- Terms
and conditions allow cost-savings sharing with supplier
, - similar to fixed-price with redetermination contract
- typically utilized under conditions of high unit cost and relatively
long lead times
What are the 4 examples of Cost Based Contracts? - ANSWER-1. Cost
Plus Incentive fee
2. Cost-Sharing
3. Time and Materials
4. Cost Plus Fixed-Fee
Key characteristics of Cost Plus Incentive Fee - ANSWER-- similar to
fixed-price plus incentive except incentive is based on changes in
allowable costs
- may include cost-savings sharing at. predetermined rate
- appropriate when parties are confident of initial target cost
Key characteristics of Cost-Sharing - ANSWER-- costs are shared
between parties on a predetermined basis
- key is identification of operations guidelines, goals, and objectives
- need to spell out expectations clearly
Key characteristics of Time and Materials - ANSWER-- generally used
in plant and equipment maintenance agreements
- costs cannot be determined prior to the actual repair
- based on an agreed upon labor rate
- requires a "not to exceed" amount
