Deck 10: Price

Question 1

In the event the bidder does not make proper payment to its suppliers, the bond that protects the buyer against liens that might be granted to these suppliers, is called a:

A) performance bond.
B) surety bond.
C) bid bond
D) payment bond.
E) lien bond.

Answer 1

D

Question 2

One justification for a quantity discount is that the buyer should not pay more than the actual cost of packing, crating, and transportation.

Answer 2

True

Question 3

A cash discount of 2/10, N/30 2 percent cash discount if payment is made in 10 days, with the gross amount due in 30 days) is the equivalent of approximately a 36 percent interest rate.

Answer 3

True

Question 4

For goods bought on a non-recurring basis, the contract may provide for a reduction in price should the buyer ever again purchase the item.

Question 5

Forward buying:

A) offsets transactions to protect against price and exchange risks
B) involves no risk for the buying organization.
C) involves purchasing for known or estimated near-term requirements.
D) is the same as speculation.
E) seeks to take advantage of price movements.

Question 6

Online reverse auctions are useful means of price determination for special items.

Question 7

An escalator clause provides for an increase, as well as a decrease, in price if costs change.

Question 8

To be fair, the basis and terms of cancellation should be agreed on in advance and made part of the terms and conditions of the purchase order.

Question 9

The prime function of an organized commodity exchange is to furnish an established marketplace where:

A) the forces of supply and demand operate freely.
B) commodity prices can be controlled.
C) sellers of the same commodity can come together to set prices.
D) products that are difficult to grade can be traded.
E) there are only a limited number of buyers and sellers.

Question 10

A cash discount allows:

A) the seller to secure prompt payment, but has no benefits for the buyer.
B) the buyer to pay a lower price per unit, but has no benefits for the seller.
C) the seller to secure prompt payment, and the buyer to pay a lower price per unit.
D) the seller to demand payment in cash on demand C.O.D.) upon receipt of goods.
E) the buyer to always calculate the discount based on the delivery date.

Question 11

Items for which prices are comparatively low, and the cost of price reduction efforts may exceed any price savings realized, are called:

A) sensitive commodities.
B) raw materials.
C) special items.
D) standard production items.
E) MRO items.

Question 12

Competitive bidding, in general, is the least efficient means of obtaining a fair price for items bought.

Question 13

The market approach to pricing:

A) means prices are set to cover direct costs, contribute to indirect, and attain a profit.
B) is the only defensible pricing mechanism for ethical companies to use.
C) implies that prices are set based on what the market will bear.
D) means that prices are adjusted regularly to ensure that the selling organization recoups all its market costs.
E) implies that market analysis is the only technique that should be employed to negotiate prices.

Question 14

Identical prices received from various sources should:

A) be expected when the specification is highly customized.
B) always make the buyer suspicious of collusion.
C) only draw attention if the buyer is dissatisfied with the price quoted.
D) draw attention if the specification is complex or detailed.
E) result in the buyer taking legal action against all bidders.

Question 15

Most direct costs are:

A) variable costs.
B) overhead costs.
C) general and administrative costs.
D) semivariable costs.
E) fixed costs.

Question 16

The Robinson-Patman and Sherman Antitrust Acts are primarily designed to prevent the stronger party from imposing too onerous conditions on the weaker one and preventing collusion so that competition will be maintained.

Question 17

Canceling a contract for a technicality when market prices are falling is considered a perfectly acceptable and ethical practice.

Question 18

Governments play a role in establishing prices by establishing production and import quotas and by regulating the ways that buyers and sellers are allowed to behave in agreeing on prices.

Question 19

If the buyer wants to motivate the seller to manage total costs, the best type of contract is:

A) firm-fixed-price FFP).
B) cost-plus-incentive-fee CPIF)
C) firm-fixed-price plus incentive fee FFPIF).
D) cost-plus-fixed-fee CPFF).
E) cost-no-fee CNF).

Question 20

A fair price:

A) is based on market conditions, and cost structure has no bearing on the determination of a fair price.
B) is the lowest price that ensures a continuous supply of the proper quality where and when needed and at which the supplier makes a reasonable profit.
C) is based on the cost to produce an item or service without consideration for the supplier's profit margin.
D) is an amount arrived at through negotiations where the seller's price is a starting point..
E) is when all sellers of equal goods or services receive the same per unit price.