Practice Test Geeks(CPP) Certified Purchasing Professional Practice Test
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Cost Analysis & Total Cost of Ownership Flashcards

7 cards from real CPP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. A contract uses an economic price adjustment (EPA) clause tied to a commodity index. The original price was $100/unit when the index was 200. If the index rises to 220, what is the adjusted price?

    Answer: $110

    Adjusted price = $100 × (220/200) = $100 × 1.10 = $110 per unit.

  2. In TCO analysis, 'post-transaction costs' include which of the following?

    Answer: Warranty claims, product returns, and disposal costs

    Post-transaction costs occur after purchase and delivery, including warranty service, product returns, and end-of-life disposal.

  3. When comparing bids, a buyer converts all costs to a 'landed cost.' This includes:

    Answer: Unit price plus all costs to deliver the product to the buyer's facility, including freight, duties, and insurance

    Landed cost is the complete cost of a product arriving at the buyer's facility, encompassing unit price, freight, insurance, customs duties, and other logistics costs.

  4. A supplier's cost proposal shows a 'burden rate' of 150% applied to direct labor. If direct labor is $40/unit, what is the applied overhead per unit?

    Answer: $60

    Applied overhead = Direct labor × Burden rate = $40 × 1.50 = $60 per unit.

  5. Which analysis technique segments total costs into smaller components (e.g., materials, labor, overhead, profit) to identify negotiation opportunities?

    Answer: Cost breakdown analysis

    Cost breakdown analysis dissects a supplier's total price into its constituent elements, revealing where value is generated or costs may be challenged.

  6. The 'net present value' (NPV) method is used in TCO analysis primarily to:

    Answer: Account for the time value of money when comparing costs and savings that occur over multiple future periods

    NPV discounts future cash flows to present value, allowing fair comparison of cost streams that occur at different points in time.

  7. A buyer discovers that a supplier's quoted profit margin is 25% on total cost. The total cost is $80/unit. What is the supplier's quoted price?

    Answer: $100

    If profit is 25% on total cost, profit = $80 × 0.25 = $20; quoted price = $80 + $20 = $100 per unit.