CPP Cost Analysis & Total Cost of Ownership 3

Question 1

The learning curve theory suggests that as cumulative production doubles, unit labor costs decrease by a fixed percentage. If a 90% learning curve applies, and the first unit costs $1,000, the second unit should cost approximately:

Accepted Answer

$900

Answer

A 90% learning curve means the second cumulative unit costs 90% of the first unit's cost: $1,000 × 0.90 = $900.

Question 2

Which of the following is a 'transaction cost' that should be included in TCO calculations?

Accepted Answer

Order processing, invoicing, and payment administration costs

Answer

Transaction costs like order processing, invoicing, and payment administration are internal buyer costs associated with conducting business with a supplier.

Question 3

A cost structure where 70% of costs are fixed and 30% are variable is said to have high:

Accepted Answer

Operating leverage

Answer

High operating leverage means a large proportion of costs are fixed, so small changes in volume cause large swings in profit.

Question 4

In supplier cost breakdowns, 'burden rate' or 'overhead rate' typically includes:

Accepted Answer

Indirect costs such as factory rent, utilities, and supervision allocated to products

Answer

Burden or overhead rates allocate indirect manufacturing costs (rent, utilities, supervision) to products based on a driver like direct labor hours.

Question 5

A buyer uses weighted-criteria evaluation to select a supplier. Price receives a weight of 40%, quality 35%, and delivery 25%. Supplier A scores 80/70/90 and Supplier B scores 70/90/80. Which supplier wins?

Accepted Answer

Supplier A with a weighted score of 79

Answer

Supplier A: (80×0.4)+(70×0.35)+(90×0.25) = 32+24.5+22.5 = 79; Supplier B: (70×0.4)+(90×0.35)+(80×0.25) = 28+31.5+20 = 79.5 — Supplier B actually wins at 79.5.

(CPP) Certified Purchasing Professional Practice Test

(CPP) Certified Purchasing Professional Practice Test

CPP Cost Analysis & Total Cost of Ownership 3