CPP Procurement Planning & Cost Analysis 2 — Questions and Answers
Question 1: A buyer is evaluating whether to produce a component in-house or outsource it. Which cost should be EXCLUDED from the make-or-buy comparison?
- Incremental direct labor for in-house production
- Sunk costs of equipment already purchased and fully paid (Correct answer)
- Supplier freight charges
- Additional quality inspection costs for outsourced parts
Correct answer: Sunk costs of equipment already purchased and fully paid
Sunk costs cannot be recovered regardless of the decision, so they are irrelevant to make-or-buy analysis.
Question 2: Fixed costs are $50,000, selling price is $25 per unit, and variable cost is $15 per unit. What is the break-even volume?
- 2,000 units
- 3,333 units
- 5,000 units (Correct answer)
- 10,000 units
Correct answer: 5,000 units
Break-even = fixed costs / (price - variable cost) = 50,000 / 10 = 5,000 units.
Question 3: Under an 80% learning curve, if the first unit takes 100 labor hours, how many hours should the fourth unit take?
- 80 hours
- 72 hours
- 60 hours
- 64 hours (Correct answer)
Correct answer: 64 hours
Each doubling of cumulative output reduces time to 80%: 100 to 80 (unit 2) to 64 (unit 4).
Question 4: Which approach builds an estimate of what a product SHOULD cost based on materials, labor, overhead, and reasonable profit?
- Should-cost analysis (Correct answer)
- Price analysis
- Competitive bidding
- Spend analysis
Correct answer: Should-cost analysis
Should-cost modeling estimates an item's efficient cost from its component cost elements to support negotiation.
Question 5: A procurement team aggregates purchase data across business units to identify consolidation opportunities. This activity is called:
- Value engineering
- Spend analysis (Correct answer)
- Supplier certification
- Requisition processing
Correct answer: Spend analysis
Spend analysis collects, cleanses, and categorizes spend data to reveal leverage and savings opportunities.
Question 6: A supplier offers a payment of $1,100 one year from now. At a 10% discount rate, what is its present value?
- $990
- $1,000 (Correct answer)
- $1,010
- $1,100
Correct answer: $1,000
PV = 1,100 / (1 + 0.10) = $1,000.
Question 7: Which item is MOST likely to be overlooked when comparing suppliers on unit price alone rather than total cost of ownership?
- The quoted unit price
- The quantity ordered
- Maintenance, downtime, and disposal costs (Correct answer)
- The supplier's name on the invoice
Correct answer: Maintenance, downtime, and disposal costs
TCO captures post-purchase costs such as maintenance, downtime, and disposal that unit price ignores.
