CPP Cost Analysis & Total Cost of Ownership 2

Question 1

Which cost element is most commonly overlooked when calculating Total Cost of Ownership (TCO) for capital equipment?

Accepted Answer

End-of-life disposal and decommissioning costs

Answer

End-of-life disposal costs are frequently omitted from TCO calculations despite being significant, especially for hazardous or regulated equipment.

Question 2

A supplier offers a unit price of $50 with $5,000 in annual tooling maintenance fees. A competitor offers $55 per unit with no additional fees. At what annual volume do both options cost the same?

Accepted Answer

1,000 units

Answer

At 1,000 units: Supplier A = $50,000 + $5,000 = $55,000; Supplier B = $55 × 1,000 = $55,000 — the breakeven point.

Question 3

In cost analysis, the term 'should-cost' model refers to:

Accepted Answer

A buyer's independent estimate of what a product or service ought to cost based on its components

Answer

A should-cost model is a buyer-developed estimate based on materials, labor, overhead, and profit to use as a negotiation baseline.

Question 4

Which of the following best describes 'price analysis' as opposed to 'cost analysis'?

Accepted Answer

Price analysis compares the offered price to market benchmarks without examining underlying costs; cost analysis examines cost elements

Answer

Price analysis evaluates whether a price is reasonable by comparison to the market, while cost analysis dissects the underlying cost components.

Question 5

A buyer is evaluating a 5-year software contract. Which TCO component would NOT typically be included?

Accepted Answer

The vendor's R&D investment in developing the software

Answer

The vendor's internal R&D investment is a sunk cost for the vendor, not a cost borne by the buyer, and is not part of the buyer's TCO.

(CPP) Certified Purchasing Professional Practice Test

(CPP) Certified Purchasing Professional Practice Test

CPP Cost Analysis & Total Cost of Ownership 2