Ch 11 - Cost Management

Question 1

Strategic cost management

Answer 1

Externally focused process of analyzing costs in terms of the overall value chain

Question 2

Cost analysis

Answer 2

Measure and improve costs performance by focusing attention on specific cost elements

Question 3

Competitive advantage sources

Answer 3

1. Product or service differentiation (customers have low price sensitivity)
2. Low cost (customers have high price sensitivity)
3. Combination of product or service differentiation and cost leadership)

Question 4

ABC or Pareto Analysis & Cost Managemen

Answer 4

ABC analysis assigns items to wither A,B, or C category

A - high dollar items
B - medium dollar
C - low dollar items

Turns indirect costs into direct costs by tracking the cost drivers behind indirect costs

Question 5

Commodity-type items

Answer 5

Standard off-the-shelf goods or services with substitutes available

Question 6

Portfolio or Quadrant analysis

Answer 6

Enables a supply management team to place each major spend category on a spend map based on the risks to acquire in the marketplace and the value of the category

• provides framework for developing strategic plans for spend categories and for applying price and cost management tools
• higher risks and higher value purchases

Question 7

Price analysis

Answer 7

Examines price proposals without examining elements of cost and profit
-review actual or future costs

Question 8

5 cost management techniques

Answer 8

1. Total cost of ownership (TCO)
2. Target pricing
3. The learning curve
4. Value engineering and value analysis
5. Activity based costing

Question 9

Total cost of ownership (TCO)

Answer 9

Purchaser should estimate the total cost of ownership before selecting a supplier

• includes all relevant costs (admin, follow up, expediting, inbound transportation, inspection, and testing, rework, storage)
• identify the actual cost of the supply decision

Question 10

Overhead costs for manufacturing

Answer 10

Indirect costs incurred in the manufacturing, research, or engineering facilities of the company

• if allocated as a fixed percentage of direct labor costs and there is an increase in labor costs, overhead can be unduly inflated unless the allocation percentage is changed.
• approximated

Question 11

Target costing

Answer 11

Set the price at which it plans to sell its finished product then subtracts out its normal operating profit, leaving the target cost that the org seeks.

Question 12

Value engineering (VE)

Answer 12

The application of this analytical process to the design stage of a product or service

Question 13

Value analysis (VA)

Answer 13

The redesign of a product or service

-by focusing on function and cost in the design stage, unless are costs can be avoided

Question 14

Buyers use activity-based costing as a tool to reduce supplier cost by:

Answer 14

• eliminating nonvalue-adding activities
• reducing activity occurrence
• reducing the cost driver rate

Buyer must collect data from suppliers on activities (specific tasks), cost drivers, rates, and units

Question 15

Negotiation

Answer 15

Most expensive means of price determination
-requires buy and supplier though discussion, arrive at common understanding on the purchase/sale contract, like delivery, warranty, prices, and terms

-attempt to find agreement that allows both parties to realize their objectives