Cost Reduction & Value Analysis Strategies 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.
Read the first 7 Cost Reduction & Value Analysis Strategies flashcards as text
Which type of cost is MOST relevant to a short-term make-or-buy decision?
Answer: Variable and incremental costs
Only future, incremental costs that will change as a result of the decision are relevant; sunk costs and committed fixed costs do not change regardless of the choice.
In value analysis, the term 'use function' describes:
Answer: The basic, essential purpose that a product must accomplish
Use functions are the primary, measurable actions or results a product must perform to fulfill its purpose.
A buyer consolidates five separate purchase orders for the same commodity from different departments into a single order. The cost saving achieved is BEST described as:
Answer: Volume discount savings from spend aggregation
Aggregating demand across departments creates a larger order that justifies lower per-unit pricing through volume discounts.
When benchmarking supplier prices, a purchasing professional compares offered prices against:
Answer: Market prices, competitor pricing, or similar past transactions
Effective price benchmarking uses multiple external reference points including market data, competitive pricing, and historical transaction data.
A cost reduction initiative that focuses on reducing the number of approved suppliers per commodity is called:
Answer: Supply base rationalization
Supply base rationalization consolidates purchases with fewer, preferred suppliers to increase volume leverage and reduce administrative overhead.
Kaizen costing, as applied in a purchasing context, aims to:
Answer: Achieve continuous incremental cost reductions after production begins
Kaizen costing focuses on ongoing, incremental improvements to reduce costs during the production phase rather than only at design.
Which contract type places the GREATEST cost reduction incentive on the contractor?
Answer: Firm-fixed-price (FFP)
Under a firm-fixed-price contract, the contractor bears all cost risk and directly profits from any cost savings, creating maximum incentive for efficiency.