CPSM Financial Analysis & Cost Management in Supply Management

Question 1

A supply manager is evaluating two suppliers for a component.
Supplier A charges $12 per unit but requires a minimum order of 5,000 units.
Supplier B charges $14 per unit with no minimum.
When calculating Total Cost of Ownership (TCO), which additional factor should be weighted MOST heavily?

Accepted Answer

Inventory carrying costs associated with Supplier A's minimum order requirement

Answer

The color of the packaging used by each supplier

Answer

The distance between each supplier's headquarters and the buyer's main office

Answer

The number of years each supplier has been in business

Question 2

Which analytical technique separates a supplier's quoted price into its underlying cost elements (materials, labor, overhead, profit) to assess whether the price is reasonable?

Accepted Answer

Cost analysis

Answer

Market price analysis

Answer

Price index benchmarking

Answer

Competitive bidding

Question 3

A make-vs-buy analysis concludes that producing a component in-house costs $8 per unit versus $10 from an external supplier. However, the analysis should also consider which of the following before finalizing the decision?

Accepted Answer

The opportunity cost of capital and management attention devoted to in-house production

Answer

Whether the component is aesthetically similar to competitor products

Answer

The marketing strategy for the finished product

Answer

The number of patents held by external suppliers

Question 4

When a supply manager reviews a supplier's financial statements to assess viability, a HIGH current ratio (current assets ÷ current liabilities) primarily indicates:

Accepted Answer

The supplier has strong short-term liquidity to meet near-term obligations

Answer

The supplier is likely to default on its debt in the short term

Answer

The supplier is overpriced relative to competitors

Answer

The supplier carries excessive long-term debt

Question 5

Price escalation clauses in long-term supply contracts are PRIMARILY used to:

Accepted Answer

Automatically adjust the contract price based on changes in agreed-upon cost indices

Answer

Allow the buyer to reduce price unilaterally if the market falls

Answer

Eliminate the need for competitive bidding on renewals

Answer

Cap the supplier's profit margin throughout the contract term

Question 6

Target costing is a supply management technique in which:

Accepted Answer

The buyer determines an allowable cost by subtracting a desired profit margin from the expected market price, then works with suppliers to achieve that cost

Answer

The supplier sets its price based on actual production costs plus a fixed markup

Answer

Competitive bids are averaged to establish a market price target

Answer

The government mandates cost ceilings for regulated commodities